From what I can tell, this would certainly perform a number of the key goals lawmakers seem to have for the prospective legislation so far:

1) Get consumers spending again (and taking on more debt: I’m sure many who can’t afford a car, even with a $1,000 voucher or several, will be encouraged to take on debt — if they can qualify for it — and purchase a car to get their piece of the government handouts). I don’t think that’s a good idea in the long run, but that’s certainly where things are encouraged to head in the short run through every Federal action so far.

2) Send money to the automakers while providing political cover for it and limiting the encouragement to other panhandling industries: They’ll be providing a politically more-tenable stimulus that won’t go directly to savings and debt servicing as the last stimulus check appeared to do, while avoiding accusations of providing a giveaway to a company or industry, somewhat.

3) Boost employment/ameliorate declining employment: Such an incentive could definitely help keep a lot of automotive industry affiliates in business for the short term at least (from car dealers to suppliers). This would probably crush the used car market though, but they don’t have a lobby so I’m sure lawmakers won’t care. Automakers/lenders will have an increased problem with extremely low residual values for off-lease and finance-term-completed vehicles. The extra sales I’d imagine would offset that easily though, but it would exacerbate that problem.

4) Keep voters happy enough so that a bunch of lawmakers in Michigan can keep their jobs: The most important of all for the lawmakers, of course.

I do have a very big concern with the numbers and execution though: How do we decide who gets a $1,000 voucher (for the lack of a better word)? If it’s every tax filing American, would we be looking at over 131 million Americans (the following site indicates 131 million total tax returns filed in 2004. I imagine it’s not quite accurate for 2008, but I think it’s a fair number to work off of for an estimate). (http://www.taxfoundation.org/research/show/542.html)

$1,000 x 131,000,000 Americans = $131 billion in vouchers sent out.

That is a huge number by any standard except those set by the Treasury and Federal Reserve in the past few months, and anywhere between 13 and 3 times larger than what is being estimated for a bailout of the automakers.

If only 50% of the voucher’s value applies (due to unused vouchers and the use of the vouchers on not-entirely-American cars), we would still be well over any estimate I’ve heard so far that would be required to bailout the automakers. Of course, the effect of this plan would differ greatly from the ones that have been proposed so far (my favorite is still the $12 billion cost to facilitate a GM-Chrysler merger).

Another issue I have with this plan is that it would be hard to attach any additional incentive or encouragement for automakers to change or for the unions to be brought back to the table to reduce the crippling pension/benefits cost per car that is exacerbating Detroit’s inability to build a decent car.

I’d love to hear your reply to my concerns here, ACR. You certainly put more thought into this proposal than I have, so let’s see what else you have in mind. It’s certainly an interesting proposal though and potentially a much better plan than any the ones that have been floated so far. And a voucher system, in terms of providing consumer stimulus, certainly works a lot better than just providing cash without strings attached (as has been done ineffectually in the past).

… and the cow goes moo

This time it’s the car industry.

While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable – so this time let’s target unemployment, create AMERICAN jobs and pump up the economy all at one time.

Consider the following:

Manufacturing costs of motor vehicles are 65% labor (ie: W-2 income), that’s not all direct but due to suppliers. GM alone has over 1300 suppliers. (That’s a lot of jobs!)

1 in 10 Americans makes all or part of their income due to the automobile industry.

Money turns over 5 times in a year.
Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
(This isn’t magic, it’s simply how the economy works.)

Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.

Here’s the solution

Instead of either shipping cases of cash off to car makers; or sending us all another check:

Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that’s domestic. (Civic = 70% Ford Explorer=80%)

Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.

This would bail out the car industry without giving them a dime directly
Further it would reduce the overall age of the nations cars which would in turn;
increase overall fuel economy & decrease pollution.

Strengthen the dollar!

Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported …like gas!

Jobs

Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
That would give the economy good swift kick right where it needs one!

Pays for itself!

Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
What is the income tax on 65,000 anyway?
(Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)

Another Stimulus Package?

I’m sure you’ll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV’s usually made in Malaysia or some such place.