Instead of Tossing More Money at the Detroit 3, the Government Should Help You Trade in that '94 Mercury Sable
They Might Also Want to do Something About that '90s Hairdo of YoursWe opined in last month's 'Kicking Asphalt' that instead of dumping truckloads of money on the doorsteps of the Detroit automakers, the government should use the money to guarantee auto warranties for US consumers.
When the Obama Administration included this idea in its effort to help the U.S. auto industry, Obama's political opposition caricatured the idea as putting the government in the auto business. This is silly. As we argued, its real purpose is to facilitate bankruptcy, likely the only answer for the industry.
Sure enough, GM just announced that it was preparing itself for bankruptcy.
OK, Obama Administration, as you appear to be listening, here's another idea: incent consumers to trade in their old, gas-guzzling cars for new, more fuel-efficient models*.
This is not a new idea, but Americans have been slow to consider this progressive automotive policy (a far too common occurrence in the US). Similar policies have been enacted or are being considered in Germany, Japan, France, Italy, and South Korea. The program in Germany caused new car sales to immediately jump 21 percent.
There are several versions of this plan being considered by Congress. Here's how one representative plan would work: consumers would receive vouchers for vehicles at least nine years old. In this scenario, the vouchers could well be worth more than the current value of their vehicles. The consumer could then use a voucher worth $4,000-$5,000 as a down payment on a new car for $20,000.
It is estimated that this proposal could sell an additional 2.5 million new cars if only 2 percent of eligible vehicles were traded in. This could go a long way toward preserving jobs and keeping the US auto industry in the black.
Reviving the auto industry is a critical goal of this proposal, but it should accomplish much more: greater oil independence and lower carbon emissions. Of course, this assumes that the voucher is only available for new cars that attain a certain level of fuel efficiency.
The faster we can adapt to new technology, the faster we can make progress. The most fuel inefficient, most polluting cars tend to be older - and we will only make limited progress in fighting global warming and oil dependence while these cars remain on the road.
So, how about it, President Obama? BWC is not against federal assistance to the auto industry in principle, but the assistance has to be shaped to be as publicly interested as possible. The right kind of vouchers to get older cars off the road should be included.
*This idea can also work in other areas, though we don't recommend using it to trade in your old, inefficient spouse.