The current problem with GM, Ford and Chrysler is two-fold.

First, Detroit isn't making the cars we need or want. Thus their market share has been dwindling.

Just giving the Big Three billions isn't going to solve the problem of restructuring the US auto industry to the 21st century. But forcing them into bankruptcy isn't the best solution either.

Yes, bankruptcy would eliminate pension and health care costs (called "legacy" costs for some reason) that drive up the price of Big Three cars. But what happens to all those people who lose their pensions and health care benefits?

Yes, bankruptcy would also get rid of union contracts. Obviously many Republicans wouldn't mind sinking the UAW. But, if it wasn't for unions, auto workers would never have been able to buy the cars they were making. Unions aren't the evil some claim they area. Unions didn't blow a trillion dollars down various financial rat holes. Corporations and management did that.

The second part of the current auto manufacturing crisis is no one has any credit so they can buy new cars.

Obviously giving hundreds of billions to banks hasn't unfrozen the credit market. Where all that money has gone is a story for another day.

But there is the hint of the solution. Give auto buyers incentives to buy new, fuel efficient cars.

Let's bail out auto buyers.

Here's how this might work (only available to cars made by GM, Ford or Chrysler):

(1) Give every family a coupon good for $4,000 down payment on a new car that gets at east 30 miles per gallon. This coupon actually would likely be used to pay off the upside down debt on people's existing cars they want to trade in. Actually the coupon could even increase depending on how many miles per gallon the trade-in vehicle gets. Trading in a fuel hog SUV getting only 14 miles per gallon could rate a $5,000 credit.

For every gas guzzler we get off the road in favor of a more fuel efficient car, the better our energy situation will be.

(2) Give every family a federally guaranteed car purchase loan at 3% interest rate, no credit qualification required. Why no qualification? Because right now, hardly anyone qualifies for any kind of loan.

Our guess is millions of people would love to get rid of their old, piggish cars and get nice new fuel efficient cars with neat things like air bags and a working stereo system. And people need cars to get to work and do their work.

Demand for new cars would explode. The Big 3 would have to crank up production of their fuel efficient cars and trucks and jobs would be saved.

The only condition for this program would be that the cars would have to be made (at least 90%) in the USA.

Thus, for however many billions this would cost, we'd keep our auto-making capacity intact, put a lot more fuel efficient cars on the road, and also put a lot more safer cars on the road.

Copyright 2008 2009 by Hugh A. Holub