Ford, GM, and Chrysler - Can the Big Three Be Saved Without Massive Taxpayer Bailouts?

IHT reported the "Big Three" automakers' CEOs are in Washington pleading for a $36 billion taxpayer bailout. A few weeks earlier Ford, GM and Chrysler asked for "just" a $25 billion bailout, so even a $36 billion bailout may not be enough. Can Ford, GM, and Chrysler be saved without such massive taxpayer bailouts?

Why Ford, GM, and Chrysler want a taxpayer bailout

When problems become too complex for readily seen solutions, simplifying can help an otherwise impossibly complex situation. Simplifying, Ford, GM, and Chrysler's crisis has two parts. First, the Big Three's costs aren't competitive due to concessions made to the UAW in better times. Second, with the current recession, dropping demand for vehicles cannot support Ford, GM, and Chrysler.

Outright failure of Ford, GM, and Chrysler would cost millions of jobs. Bankruptcy restructuring would spook potential customers afraid to lose warranty coverage. Ford, GM and Chrysler are already seen as less likely to survive and honor their warranties than Honda or Toyota, who also have better reputations for quality and fuel-efficiency.

A taxpayer bailout for Ford, GM, and Chrysler ignores these underlying problems. More and more bailouts would be needed to support the Big Three until the economy recovers, probably after 2 or more years and hundreds of billions in additional taxpayer bailouts.

A solution for Ford, GM, and Chrysler without taxpayer bailouts

Instead, we could use a two-pronged approach. First, require UAW give up benefits beyond what most Americans have (e.g. nearly free healthcare) which would anyway be lost should Ford, GM, and Chrysler fail. In return, have Ford, GM, and Chrysler guarantee a portion of any profits as bonuses independent of salary, benefiting lower-paid workers more than highly-paid ones.

Having PBGC take on the cost of Ford, GM, and Chrysler's retiree healthcare would reduce the impact on current retirees while minimizing taxpayers cost compared to outright failure of the Big Three or continuous bailout packages.

Second, rather than a Ford, GM, and Chrysler bailout, create a new deduction for taxpayers buying new cars, structuring it to improve our national fuel-efficiency. The deduction should cover the cost difference between new vehicle and trade-in, but only if the new fuel-efficiency is at least 30% higher.

Owners of SUVs and other gas-guzzlers would be encouraged to replace them with gas-efficient cars. To prevent purchases of used SUVs just for the deduction, require trade-ins be owned by the taxpayer for at least a year and stop the program after a year. Having automakers break apart trade-ins for parts would avoid returning them to the national fleet.

The resulting demand for new, fuel-efficient, vehicles would push Ford, GM and Chrysler to improve their fleet gas-mileage, and increase their revenues without taxpayer bailouts. Requiring purchases of new vehicles from the same automakers as trade-ins will most benefit automakers with the least fuel-efficient fleets which are, yes, GM, Ford, and Chrysler.