Fixing Detroit: Experts have wide range of ideas

U.S. automakers are in deep trouble. On Tuesday General Motors, Ford and Chrysler reported their worst monthly sales in 26 years, and on the same day the companies asked Congress to grant them $34 billion in federal loans to help them overcome slumping demand because of the recession, the credit crunch and changing consumer taste. GM said it needs $12 billion alone by March to stay in business.

If Congress grants them the loans, will it be enough? What does Detroit need to do to survive? We asked a handful of automotive industry experts and observers for their views on how the nation’s big automobile makers can fix their problems. Other experts have offered their opinions to CNBC and other media outlets.

Here is a sampling of their ideas:

Daniel Sperling, director of the Institute of Transportation Studies at the University of California, Davis, and co-author of the new book “Two Billion Cars: Driving Toward Sustainability”

High gasoline prices could provide a large portion of the $25 billion bailout that the “Detroit Three” U.S. automakers are asking the government to provide to see them through these difficult times.

The federal government should establish a price floor of $3.50 per gallon on gas and impose a variable tax to bring the price back up to $3.50 if it drops below that level, as has been the case recently. The tax disappears if the price of gas goes above $3.50.

At current gas prices, the variable tax would raise enough money in one month to generate more than $17 billion, providing a large portion of the loan guarantees the big U.S. automakers seek. The extra money generated by the variable tax could be used for other uses — one is for states to balance their budget(s). That is a plan under discussion in California right now.

The price floor would be linked to the comparable world oil price (say $85 per barrel), rather than directly to gasoline prices, so that local gas distributors aren’t tempted to manipulate prices to the target level.

Getty Images file Harvard economics professor Martin Feldstein.

To receive some of the money raised by this tax, the U.S. automakers would be required to produce large numbers of affordable, durable, safe, fuel-efficient, low-carbon vehicles within the next five years. They should also be required to sell a certain number of near-zero emission cars — electric, plug-in hybrids and fuel-cell vehicles.

Besides helping out U.S. automakers, the money raised by the tax would be used to fund tax credits or vouchers to ease the burden on low-income taxpayers of higher gas prices.

Harvard economics professor Martin Feldstein (CNBC interview, Nov. 19)

We should let them go into bankruptcy.

There’s this myth out there that if they go into bankruptcy millions of people will lose jobs. That’s not what happens when you have Chapter 11 bankruptcy. The business continues, and the government could provide lending to get them over the hump while they are reorganizing. But the key thing is to become more competitive by getting wages in the current unionized auto companies in line with other automakers in the United States.

What’s the key for making the companies viable? It’s to become competitive again, and that’s going to require restructuring of the wages and benefits of the automakers. So whether it’s done in bankruptcy, or it’s done in some other managed program, that’s what has to happen.

Aaron Bragman, automotive industry analyst with consulting company IHS Global Insight

There is one thing that the government could do that would immediately make everything better — get people buying cars again.

Earlier this year, the big U.S. automakers were doing well with their turnaround plans. They were cutting costs and focusing on smaller, more fuel-efficient vehicles, but they were also counting on having revenue at the end of this year and in 2009.

Then in the late summer and fall the recession hit, and it was deeper than anyone expected, and people basically stopped buying cars. In fact, the only reason the Detroit Three are in Washington, D.C., this week asking for a bailout is the economy fell out from beneath them and car sales plummeted.

So if the government really wants to fix the U.S. automotive industry’s problems, the best thing for them to do is to provide some incentive to get people buying cars again. They could do that in a number of ways — through a tax incentive, or with special rebate plans.

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