Clunker Program Could be Strike 3 for Auto Industry

The government's striking out at their at-bat with the auto industry

Congress has already committed billions of taxpayer’s dollars (without any hope of getting this money back) just so GM, Chrysler and Ford can pay their bills.  So far, we haven’t seen much of a plan from either GM or Chrysler on how they’ll turn their companies around.

To make matters worse, President Obama appointed Steven Rattner as “Car Czar” to figure out what should be done with the Big Three. The problem is Mr. Rattner is connected to some folks closely tied to this S.E.C. complaint over corruption at the New York state pension fund.

According to the New York Times, “Mr. Rattner arranged to have [the company he co-founded] Quadrangle pay a company that employed [a political consultant to the NY state comptroller] more than $1 million as it sought business from the pension fund, a person with knowledge of the inquiry said this week.”

Strike One.

In crafting the $787 billion stimulus package, the Senate had approved a measure to give a $3,500 tax credit in 2009 for anyone who would purchase a car.  Seemed like an easy, simple plan to try to stimulate car sales.  In their final negotiations of the stimulus package, they eliminated this tax credit and replaced it with a tax “deduction” for only the amount of sales tax you pay when purchasing a new car.  Well, let’s just say that this “stimulus” attempt isn’t jump-starting anything, as new car sales for the first three months of the year are down almost 30%.

Strike Two.

With two failed attempts at reviving the American Auto Industry, Congress is looking at adopting a “cash-for-clunkers” plan, which recently had some success in Germany.

The idea is pretty simple:  Consumers would get vouchers worth as much as $5,000 for trading in models from 2001 or earlier for a new vehicle.  The goal is two-fold:  One, increase car sales; and two, improve the environment by getting old, polluting cars off the road.

Sounds like a nice idea, however, the sticking point is how much each manufacturer’s customers should receive in subsidies.  The proposed bill would go by market share in 2008, for example, General Motors had 22% of the market share in 2008, so its consumers would receive 22% of the federal funding set-aside.

Now I am all for the free market system and the belief that the strongest and best company’s should survive, while the weak ones should die.  But, if Congress is going to use taxpayer’s money to bailout the Big Three, shouldn’t they get an unfair advantage, since they are American companies and we are using American dollars?

Here is a simple, easy solution:  A $5,000 voucher for the Big Three and $2,500 for everyone else.  The rationale here is simple: If any of the Big Three can’t win with a 2 to 1 advantage, then they probably aren’t worth saving, and it should be…

Strike Three.  You’re out.

Brian P. Beck is not an employee, nor is he affiliated with NBC Universal and NBC Connecticut.  Mr. Beck is a partner at Wealth Management Group of North America, LLC, a state Registered Investment Advisory firm – Farmington, CT and is registered with Securities America, Inc. member FINRA/SIPC – Omaha, NE.  For more information please visit his website


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