Get America Rolling!

What is needed is a “stimulus” to save the domestic auto industry with it’s importance as a key element of the US Economy.

Premise: The problem isn’t that the Detroit 3 is dysfunctional and only need a bailout. The problem is that the American economy has crashed, and no high fixed cost industry like autos can function in this environment. What the auto makers, their suppliers, the millions of workers affected and America need is a robust economy led by an auto industry recovery.

The Problem: The Detroit 3 can’t survive at a 10 to 11M SAAR, consisting of roughly 5M Detroit 3 volume. The current “bailout”, doesn’t solve this problem. It would merely provide cash to help the Detroit 3 pay bills during the downturn and would not increase employment. Importantly, a big three bailout would not help the suppliers or their greater number of employees, other than through the avoidance of bankruptcy. It is likely that a single Detroit three bankruptcy or a carving up as in a GM/Chrysler deal would precipitate industry wide supplier bankruptcies. The situation is more perilous than most observers understand.

A secondary problem is that most observers think “New Deal” programs or handouts when they talk stimulus, failing to see the more profound potential of stimulating an industry as central to our economy as autos.

Solution: Stimulate industry demand to an effective 17M SAAR focused exclusively on the Detroit 3 to increase their production to approaching 11 million units…6M more than the October, 2008 rate. It is important that taxpayer money be focused on American companies, allowing foreign based companies to spend as they might wish to support their own economies and auto companies.

How: Direct Federal assistance toward auto industry production by providing irresistible incentive to dramatically stimulate demand for Detroit 3 products.

The Plan: The Federal Government would provide a $3,000/vehicle stimulus payment ($3K X 11M = $33B) for Detroit 3 products that have an OE incentive of at least $3,000 (precludes the OE’s from substituting the stimulus for their own incentives), with the $3000 usable as down payment. Note: Japanese incentives are now roughly one third of Detroit 3 incentives. The combined new domestic incentive would provide a massive total incentive, which coupled with the condition that offer termination date is open, would stimulate demand immediately.

Results: With inventories currently under control, the stimulus would result in near immediate increases in auto and supplier employment and profitability and projected federal and state tax receipts, would avoid disastrous collapse of both the OE and the supplier industry and supporting businesses, and provide the immediate lifeline that thousands of dealers all over the country need right now to stay in business and provide their vast employment. Importantly, the stimulus would create a near immediate impact on positive cash flow. Features/Benefits:

-Beyond the obvious advantages of an immediate and effective stimulus to the American economy, the plan would avoid the destruction of a critical industry. Without a healthy domestic auto industry, America may not participate in future key technologies arising from a shift to more efficient products. These kinds of technologies, coming along only very occasionally and developed by our key large industries, become the backbone of our future job creating capability.

- The payback to the government would be in greater taxes from increased business and employment activity, dramatically reduced unemployment and pension costs that would otherwise fall to the government, not from loan guarantee repayment requirements that would compound the problems faced by the auto industry, and the stimulus that an auto revival would provide to the broader economy.

- The money would go to the taxpayer/consumer and not to companies. The stimulus is for main street’s benefit and not for big business. The plan would be a social trampoline to propel people back to productive work. The optics are politically correct.

-GM/F/C’s image would shift from weak dysfunctional institutions needy of the public dole to the proud engine of American progress. .

-The optics are better…the “new” government “saves the day” by stimulating the economic engine of Detroit which can dramatically influence the national economic scene.

-OE’s get cash quickly…as soon as a car is shipped. With inventories in control there should be little lag in the system.

-GM/F/C benefit individually based on how each of them creatively and energetically participate in the plan.

-Non-Detroit 3 OE’s (Toyota, Honda, Nissan, BMW, etc) would be free to respond as they see fit… but, not with US tax payer money. The US must first takes care of its own. on which our future as an economic powerhouse depends. The plan avoids our falling further into “colony” status (a nation dependent upon a far away controlling entity to which potential wealth is forwarded).

-The stimulus level ($3,000/vehicle) and the length of time (open timing) can be adjusted quickly with experience to either further stimulate or throttle the demand to “get and keep plants full”…but, not over or under full…both of which are wasteful. The open aspect also provides a major incentive for prompt action.

Memo: When the 9/11 terrorist attack occurred, the economy came to a virtual standstill in a matter of hours. GM came to the rescue, on its nickel, with their “Keep America Rolling” campaign…a campaign to drive demand. Others joined and industry volumes went to an annual rate of nearly 22M units…demonstrating that demand driving stimulus works. "Our challenge is to make sure we can stimulate the demand side," said GM Chief Executive Richard Wagoner… GM’s eye popping program discount (0% financing), good through Oct. 31, was worth, on average, $3,600 per vehicle, Deutsche Bank estimated. What the plan would mean to Customers:

Note that the program is tilted toward less expensive vehicles that middle income Americans can afford, providing less percentage stimulus for expensive product.

Inexpensive Product More expensive Product Today Plan Today Plan -Retail Price $15k $15k $35k $35k -OE Incentive $3K $3K $4K $4K Net Price $12K $12K $31K $31K -Govmt Stimulus 0 $3K 0 $3k Net Price $12K $9K $31K $28K -Incentive as % of price paid 67% 25%

With a solid down payment of at least $3,000 (plus the value of a used vehicle) it is likely that “banks” will get back into the lending business which will further support the demand premise of the plan.

Who could introduce this idea to Washington best?

-Probably GM or Ford, should one of them wish to become the powerhouse upon which America’s recovery might be based. What a fantastic image turnaround opportunity:

-Moving from “inept” (yesterday)

-Through “on the dole” (with a bailout)

-To the “engine of America’s growth” (as proposed)

-This might be the opportunity the domestic auto industry needs to not only survive the recession but also regain the luster needed to compete successfully with the foreign makes.

HK/DR-11/9/08