[Ibon]

A proposal came my way that I am throwing out here for anyone who wants to give it support or would like to shoot it down. A friend of mine during a discussion came up with an insight and suggested we take the money we are now spending in Iraq and use it to subsidize financially stressed SUV owners with funds so they can trade in their gas guzzlers for US made fuel efficient cars. Those SUV owners who owe more than the resale value of their car would qualify. This action would help these financially strapped individuals, boost sales to the suffering US auto industry and reduce oil consumption and dependency on foreign oil. All manufacturers of US made cars, including Toyota Honda etc. would qualify.

I thought this idea had enough merit to open up a thread for discussion.

[Roy]

[mrobert]

This is a wonderfull idea.
People's birthright for cheap gas and free money must be preserved at all costs.

May I suggest taxing people that don't own a car (they have money to pay taxes, since they don't buy gas) and use that money aswell, to help suffering SUV owners?

[Leanan]

It was suggested in the NY Times last week: link

[TreeFarmer]

I've got an idea, let's take all the money from everyone who saves and makes good decisions and give it to those who make poor decisions.

Wait a minute, it wouldn't matter unless we did it on a continual basis because in five years all the money would be back in the hands of those who make good decisions.

This country has GOT to get out of the bailout mentaility. While I feel pain for those who have made bad decisions, them feeling pain is what will help them make better decisions next time.

TF

[Armageddon]

The government should just print all of us one million dollars.

[green_achers]

Yeah, it's a hare-brained idea, all right. Look for it to be on the president's desk in the next session.

Whenever I hear the word "bipartisan" I wish I had bought more gold.

[Ibon]

This country has GOT to get out of the bailout mentaility. While I feel pain for those who have made bad decisions, them feeling pain is what will help them make better decisions next time.

I agree with this in principal. In fact, in principal I am probably on the extreme end in supporting policies where experiencing pain as a catalyst for change should be promoted. That is the horn I am usually blowing into:)

But sometimes you have to be a realist in where you throw your support as in analyzing options that are feasible with the current political climate. In light of that this idea could have merit. It would accelerate the removal of inefficient vehicles. It would accelerate the transition in the auto industry toward fuel efficient vehicles. It would cut down on fuel consumption and dollars spent importing fuel. It would prevent some foreclosures etc.

I think we are already embedded in the transition toward more fuel efficient cars and we aren't going to turn back to SUV's since oil prices are never coming back down. Increasingly this is being understood by the masses even if they are kicking and screaming. So any policy that accelerates this would be good.

OF course letting those with SUV's go bankrupt and not have any money to replace their vehicles would even be more fuel efficient

[Ibon]

Whenever I hear the word "bipartisan" I wish I had bought more gold.

It is at the moment a buying opportunity.

[Twilight]

Here is the problem:
Right now the trade-in value on trucks is their metal and rubber content. They hand over their truck, the programme pays off their loan, they have a few thousand dollars. A few, probably not ten. And that is assuming the commodity bull market holds. So it is pretty obvious they need additional cash on top if they are to buy a new vehicle. And given the reality of living in most parts of the US, no new vehicle, no participation in programme.

So. The funding may be for the cost of TWO vehicles for many participants. Faced with this taxpayer-funded windfall, many will buy another banger, this time free and clear, and blow the rest on booze or one final late mortgage payment. With the number of cars in the US and multiple car households, it is quite possible hundreds of thousands if not millions of people will have a party on the national credit card without reducing their miles driven or efficiency by much. And those in real debt will not get their cars repossessed, and will not participate in demand destruction. A lot if not most of the savings will be offset in these ways.

Assuming participants are handed an economical car instead of cash, many will sell it, buy something with "bling" and repeat the process above. Vanity is powerful.

Also, US domestic car manufacturers do not produce enough economical cars to make this happen. There are too many SUV plants, too few small car plants. New ones are being talked about - in Mexico, for example. Realistically, if the programme were to be a success, it would be partly fed with cars manufactured overseas for minimal benefit to US industry. Cars for which saturated markets will shortly be declining even in the efficient industrialised world. In other words, the US taxpayer would be keeping the party going at Japanese, Korean and German companies for a few extra quarters.

Finally, by the time the government makes something like this happen the patient will be dead, but US auto loan paper will have escaped write-downs long enough for it to reach critical mass somewhere you do not want it.

Actually, there is no finally about it. As a financial beginner I have only scratched the surface.

No, there is no way for this to work if the cost is directly socialised. People have to face the choice of cutting back, moving or going broke for cuts to be made without collateral damage.

[bodigami]

the USA has the worst of communism and capitalism... that idea should be discarded.

[cube]

*maybe off-topic*

It's been said many times, small cars are not profitable for car manufactures that's why they've been dragging their feet for so long. I think one main reason for this setup is because car companies can use the profits from SUV's to subsidize their losses on selling small cars.

In a future world where EVERYBODY drives a small car, the car companies would be forced to raise the price on small cars to make a profit. There's a pro / con to everything.
As much as people on this website hate SUV's.......it's departure will unfortunately lead to more expensive small cars in the future.

my 2 cents.

[shady28]

A proposal came my way that I am throwing out here for anyone who wants to give it support or would like to shoot it down. A friend of mine during a discussion came up with an insight and suggested we take the money we are now spending in Iraq and use it to subsidize financially stressed SUV owners with funds so they can trade in their gas guzzlers for US made fuel efficient cars. Those SUV owners who owe more than the resale value of their car would qualify. This action would help these financially strapped individuals, boost sales to the suffering US auto industry and reduce oil consumption and dependency on foreign oil. All manufacturers of US made cars, including Toyota Honda etc. would qualify. I thought this idea had enough merit to open up a thread for discussion.

So you are saying that the people who bought fuel efficient vehicles to begin with should subsidize (via their taxes) the stupid people who bought big SUVs that they effectively cannot afford to own.
How about no.

[shady28]

[quote="Ibon]... I think we are already embedded in the transition toward more fuel efficient cars and we aren't going to turn back to SUV's since oil prices are never coming back down.[/quote]
I like what you said, but the above assumption is IMO going to be dead wrong.
Demand destruction is and will continue to rapidly trump peak oil.

[Canuk]

*maybe off-topic* It's been said many times, small cars are not profitable for car manufactures that's why they've been dragging their feet for so long. I think one main reason for this setup is because car companies can use the profits from SUV's to subsidize their losses on selling small cars.
In a future world where EVERYBODY drives a small car, the car companies would be forced to raise the price on small cars to make a profit. There's a pro / con to everything. As much as people on this website hate SUV's.......it's departure will unfortunately lead to more expensive small cars in the future. my 2 cents.

After working in the auto parts industry (TRW) I can tell you that is correct from my knowledge. Funny thing is Honda and Toyota did not have the same problem.

A couple of other factors such as:
Japan has socialized medicine and government pensions (approx $5-600 per car or more in savings).
US has a 25% tariff on trucks so the truck and SUV market was protected from competition.

Yes, cube, cars will be more expensive but also due to the rising costs of steel, plastic, rubber, etc. - since the operating costs will also be more maybe the capital cost won`t seem as bad. Maybe the US can come up with a reason for a tariff on small cars to protect what's left of the domestic market...

[Iaato]

A proposal came my way that I am throwing out here for anyone who wants to give it support or would like to shoot it down. A friend of mine during a discussion came up with an insight and suggested we take the money we are now spending in Iraq and use it to subsidize financially stressed SUV owners with funds so they can trade in their gas guzzlers for US made fuel efficient cars. Those SUV owners who owe more than the resale value of their car would qualify. This action would help these financially strapped individuals, boost sales to the suffering US auto industry and reduce oil consumption and dependency on foreign oil. All manufacturers of US made cars, including Toyota Honda etc. would qualify.

This teaches J6P that he'll be bailed out for bad energy decisions, and teaches the car manufacturers that they'll be bailed out for mediocre, wasteful designs and corporate mismanagement. Even if J6P uses his money to buy a new US car that gets, say, twice the mileage, J6P will then turn around and drive it twice as far, or maybe buy two of them, since he's saving so much on his gas (Jevon's). The car manufacturers need to fail, and we need something totally different.

But the biggest reason why not is because the private motoring model is done. All of these bailout/bargaining attempts will fail, after they have dug us in deeper. We should be using the money we are spending in Iraq to retrofit homes and develop high EROI alternatives. How does building a bunch of new cars and subsidizing their purchase reduce oil consumption and dependency on foreign oil?

[cube]

Maybe the US can come up with a reason for a tariff on small cars to protect what's left of the domestic market.

I think the gov. should go back to where it was 100 years ago when it provided the absolute most basic of services that we can ALL agree is worth paying taxes for.
For example:
red light means stop
green light means go
mixing rat feces with meat to make sausages should be illegal
//
The last time government *tried* to help people was to give an "implicit guarantee" of backing home mortgages in hopes of providing liquidity and therefore cheaper home loans.
We all know how that turned out.

[Ibon]

You have to ponder a moment what choices any government will have once resource constraints cause increasingly severe contractions of the life its citizens take for granted that will in stages become increasingly obsolete. In these opening acts we may lose the big McMansion houses and big SUV's. These first consequences are already creating a public outcry. So if there are not attempts at a "bailout" or at least adjustments in the form of subsidies to try to mitigate how does a government survive.

Let's put it another way. How does any government survive the multi decade task of the real mitigation that would be required to build up an alternative sustainable infrastructure of mass transit using alternative energies if it is not simultaneously dealing with mitigating the hardships of the current generation going through the growing pains of this transition?

You cannot just make bold statements that the government should stop bailing out its citizens when any government that didn't take short term actions wouldn't stand a chance in hell of surviving.

So we have the enormous task with ever diminishing energy and resources to balance the short term needs of the current generations citizens with the long term requirements to make a transition toward a more sustainable society.

Doing this without a social revolution or without war seems very unlikely unless through some other means we could bring down the human population first to a level where those diminishing energy resources could be equally shared between short term needs and long term mitigation.

[cube]

...You cannot just make bold statements that the government should stop bailing out its citizens when any government that didn't take short term actions wouldn't stand a chance in hell of surviving. ...

So you're basically saying the gov. will continue to bail out people who make stupid decisions to avoid a French Revolution. okay fair enough.
I think you are right. I think gov. will continue to do just that!

and here is what the end result will be. --> a guaranteed collapse
Trying to divert shrinking resources into the transition to a PO world should be hard enough. Trying to do that while also having to simultaneously bleed whatever money we have left to support the stupid is a financial impossibility.

[MrBill]

Any government subsidy that favored domestic versus foreign imports would in any case fall foul of WTO obligations triggering tit for tat tariffs on US exports that are currently at record levels due a weak US dollar.

Any subsidy paid to American car makers for small cars at the exclusion of foreign automakers - $2000, $5.000, $10.000 - would get capitalized into the price of US made small cars. That would benefit car makers at the expense of taxpayers. There is no way the car makers will pass along that windfall except in rebates that narrow the price difference between domestic made cars and similar imports. I can see the car companies working on those spreadsheets right now.

It still does nothing to solve the problem of how to extricate US forces from Iraq. So you replace one unfunded liability with two. Remember the USA is running budget deficits. They do not have any surplus to spend. While doing nothing to reduce America's dependence on imported oil, which I am told is the reason that America is in Iraq in the first place?

And, of course, as others have rightly pointed out, this simply rewards poor decision making, and penalizes those that already own small cars, take public transport or do not own cars. Not unlike the interest rate tax deduction on mortgages that unfairly discriminates against those that rent or those that cannot afford to buy a house. It is bad public policy.

Given it is such a bad idea there is likely someone in Congress working on such a plan right now. Maybe a Congressman from Detroit.