Tuesday, December 16, 2008

A Car in Every Garage

December 16, 2008, 7:30 a.m.

Harkin Didn't Write Again Today
(Brought to you by FromDC2Iowa.blogspot.com)

Iowa's Senator Tom Harkin is drawing on the politics of fellow Iowan Herbert Hoover, who once promised "a chicken in every pot, a car in every garage" -- but you have to get your own chicken.

If all a CEO wants to do is keep her company from going bankrupt laying off workers makes economic sense -- especially if the top priority is hanging on to her multi-million-dollar salary and benefits package. And if she's a friend of yours, and you are a government official with the discretionary ability to dispense trillions of dollars, giving her a few billion also makes sense.

But if what you're trying to do is turn around the economy, it doesn't make a lot of sense to give money to the CEOs who are trying to sell stuff rather than the consumers who would like to buy stuff, have the power to drive 70% of our economy, and are out of work because of some CEO's decision.

As I wrote here recently: "Only when we put more money in the hands of consumers (or permit them to keep more of what they have) will there be any true rescue of the auto -- or any other American -- industry. This is one of those times when even if your only goal is to further enrich the wealthy, the only way to do it is to let the money trickle up, not down." Nicholas Johnson, "Quick Fix for the Economy," December 12, 2008.

It was nearly a month ago that I wrote "Auto Bailout: An Open Letter to Congress," November 19, 2008, addressed to the two Iowa senators and our local congressman. Since I don't presume this blog is the first thing they read every morning I also sent the letter to them the old fashioned way, through the postal service.

Dave Letterman had a running joke on his CBS "Late Night" show about his desire to appear on Oprah's TV show. He'd call his office, ask if Oprah had called that day, and then enter in his journal, "Oprah didn't call again today."

Well, "Senator Harkin didn't answer again today." It's a sad commentary about the disconnect between we the constituents and those who are supposed to be our "elected representatives." Read the "open letter," linked above. It seems to me the questions were pretty straight forward and involved matters of great consequence (the auto bailout) not only for Iowans, but for Americans generally.

(It's reminiscent of a conversation with a friend of mine a while back. She asked what I'd been doing and I replied that I was just staying at home, near the phone, thinking she might call. To which she replied, "How's that been working for you?" It was working kind of like the country-western line, "Since my phone still ain't ringing I assume it still ain't you," from Randy Travis' "Is It Still Over?" Well, checking my mailbox at the post office every day for replies from Washington hasn't been working for me any better than sitting by the phone.)

However, I at least want to give Harkin credit for an idea that is responsive to my endow-the-consumers-not-the-CEOs approach -- as well as a family member's suggestion that every American family be given a car. (We priced that one out and realized the cost was a few orders of magnitude beyond even the generosity of this Administration and Congress.)

Here's the story, as presented by Des Moines TV station KCCI:

Sen. Tom Harkin . . . introduced a bill earlier this week that in turn would take older, less-fuel-efficient cars off the road, while also giving buyers a big bonus.

The Sell Fuel Efficient Cars Act would provide a rebate of $10,000 to buyers who trade in a car more than 10 years old for a new American car. . . .

The rebate would be limited to families with an adjusted gross income below $40,000 a year or individuals making less than $25,000.

To get the rebate, you would be required to turn in a car more than 10 years old that is still drivable.

The rebate would only apply to purchases of fuel-efficient GM, Ford or Chrysler vehicles that are assembled in the United States. The car would have to have an average fuel economy of 25 miles per gallon.

Officials said close to 15 percent of automobiles that are manufactured by the Big Three automakers would qualify for the rebate.

There would be a one-car limit per family or individual and the program would end in 2009.
"Harkin Proposes $10K Auto Purchase Rebate," KCCI-TV8, December 12, 2008.

Commentary:

"A snowball's chance . . .." Snow balls have a great chance of survival in Iowa these days, indeed entire snowmen. The hell of Washington is, however, another matter. But this blog has always been more attracted to what's right, what's rational, than to what's expedient.

Win-win. Look at what all this proposal accomplishes. (1) It gets money to the Big Three auto companies, but by running it through the hands of consumers and the marketplace rather than handing it over to CEOs. (2) The money is not just free cash that can be used for anything (like the banks' bailout that was supposed to be used for loans, but instead was hoarded and used to buy up other banks); it is limited to the purchase of automobiles. (3) The retention of jobs (by suppliers and dealers as well as auto manufacturers) is dependent upon the sale (and therefore manufacture) of automobiles. No "solution" that does not involve the manufacture and sale of automobiles is a solution worthy of the name. (4) It puts money in the hands of those who need it most, individuals earning less than $25,000 or families earning less than $40,000 -- significantly more humane, and economically efficient, than further enriching those in the top 1/10th of 1% of wage earners. (5) It gets old and often unsafe cars off the road (those over 10 years old; although, disclosure: my vehicle turned 30 years old this year). (6) Because older cars tend to be less fuel efficient, and possibly more polluting, it helps reduce our dependence on foreign oil and harm from greenhouse gases. (7) It encourages Detroit to manufacture more fuel efficient vehicles.

Those are some of the positives. Now for some of the problems I see with this idea.

(1) This bill will probably never pass, so its primary value is just to get us thinking about how we ought to be going about our economic recovery -- no small contribution, but not an answer.

(2) Those who most need this kind of help may not be in an economic position to accept it. If we're talking about new cars that sell for something between $15,000 and $35,000, and folks who are earning between $25,000 and $40,000, and driving a 10-year-old car, those are the very people who are either out of work or about to be, people whose home may be in foreclosure, or whose credit cards are maxed out. They probably have neither the $5000 to $25,000 in cash, nor the ability to get that kind of credit, to enable them to buy a car -- even with the $10,000 rebate. Of course, if we're talking new cars selling for $12,000-$14,000 that's another matter.

(3) I was frankly surprised to read that only 15% of the cars made in Detroit can get 25 mpg -- and even that number is far more likely to be overstated than understated ("your mileage may vary"). Shouldn't the plan at least call for 35 mpg (my wife drives a 10-year-old Mazda four-door that gets 38 mpg highway)? Maybe electric; maybe hybred; maybe smaller vehicles. (India's new 50 mpg, $2500 Tata Nano might not be what Americans are looking for, but it does offer something to stimulate one's imagination as to what American manufacturers could design, build and sell.)

So thanks, Senator, for hopefully stimulating some more imaginative thinking in Washington and Detroit -- but I'd still kind of like an answer to my letter.

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4 comments:

Anonymous said...

Nice post, Nick. Keep on Harkin and the other legislators - we need transparency and accountability!

Anonymous said...

Great post! Perhaps they could do away with the $10,000 rebate check and simply give the more fuel efficient car to anyone who fits the criteria Harkin has suggested. I wonder what those numbers would look like. Just an idea.

Cristina said...
This comment has been removed by a blog administrator.
Nick said...

Notice Regarding Advertising: This blog runs an open comments section. All comments related to blog entries have (so far) remained posted, regardless of how critical. Although I would prefer that those posting comments identify themselves, anonymous comments are also accepted.

The only limitation is that advertising posing as comments will be removed. That is why some of the comments posted here, containing links to businesses, have been deleted. -- Nick