"The truth is incontrovertible, malice may attack it, ignorance may deride it, but in the end; there it is."
Winston Churchill (British Orator, Author and Prime Minister during World War II. 1874-1965)

Just like the request for the TARP legislation, Congress seems pushed and harried into a decision not best thought out by the parties concerned.

We were asked by members of the House on Tuesday, while visiting Capitol Hill, for options and alternatives for the automobile industry bailout. This is what we came up with, at no direct cost to the taxpayer.

As Congress debates the mechanistic details of providing a solution to the problems of Ford, Chrysler and General Motors, we at the Institute would like to see an innovative approach. Here’s our take on the solution.

This starts with a series of conferences, beginning immediately, and requires no Federal legislation.

I. The Financing Model

1. The sum of $25 Billion, proportioned among the three automakers would be arranged by The Federal Reserve.
2. The funding for the loan would come from a consortium comprised of five major oil companies, each proportionally contributing a percentage based on their annual reported earnings. These oil companies should be the largest oil companies operating in the US, whether they’re American companies or not.
3. The FRB would structure the loan at 5.5% over a 15 year period, with the FRB acting as the loan servicer – payments made to FRB and distributed by the FRB to the funding companies.
4. FRB adds on to the loan a 1.25% service charge for loan processing and servicing.

II. The Boards and Governance

1. The US Treasury will annually appoint a member of the Board of Directors of each automaker who will participate in all Board activities without vote.
2. The government representative on the Board will be responsible to monitor compliance with regulations relating to these loans and may, with authority from the US Government override any management or executive employment contract exceeding a pre-determined standard.
3. The representative acts as a “Master” in monitoring and controlling executive compensation.
4. The compensation of the representative is payable by FRB from the loan servicing fees. The companies will have no direct labor costs for the representative, except for expenses normally paid to other board members. No board fees are payable to the representative.
5. The representative will report to Treasury and FRB, each month.

III. The Guarantees

1. In order to obtain the loan, the automakers have to provide The US Government with guarantees to begin production of partially electric automobiles by 2010, with at least 50% of all consumer vehicles and leasing fleets using hybrid technologies by 2012.
2. The funding sources would receive a loan guarantee by both FRB and FDIC, in equal proportion for the loan principal.

IV. The Market

1. To ensure that the auto makers are able to succeed, Treasury would arrange with the major auto rental companies that they will purchase 90% of US manufacturer (GM, Ford, Chrysler) vehicles for a period of no less than 5 years.
2. Additionally, banks should be encouraged to offer discounted rates for US maker purchases for a period beginning immediately and for all loans originated over a 7 year period. That would give about 12 years of loans at discounted rates to incentivize the American public to buy American.
3. As a further incentive, IRS should offer two things:

• A waiver on taxes due on “cash back” – so that if some gets cash back on an auto loan, the money paid to the buyer as the cash back would not be considered taxable income for a period of 12 years, timed to match the discount period.
• A tax break equal to the interest paid by buyers of Ford, GM and Chrysler vehicles, and a tax break of 50% of interest paid on other US made vehicles, where vehicle assembly is done in this country.  

V. Labor

1. Realizing the issues of competition, Treasury and FRB will impose on the three automakers that they are prohibited from signing any labor contracts that pay any more than 5% higher costs per worker than other US based automakers.
2. All new employees would begin at a base rate equal to the starting rates at the foreign owned US automakers. Department of Labor to monitor and enforce this provision.
3. Existing contracts would not be altered except for the provisions for new hires.

VI. The Products

1. US based automakers (including all foreign makers) would be required to comply with new emissions standards issued by Dept. of Energy by 2012.
2. Ford, GM and Chrysler would provide an annual report to Congress and the appropriate regulatory bodies about compliance with vehicle standards, safety and emissions controls.

This plan would result in sufficient funding, while utilizing the symbiotic relationships of automobile manufacturers with their petroleum company partners, large-scale fleet buyers of autos and the unions to create a far more fair and successful plan than either a cash bailout or direct loan from Treasury or the Federal Reserve Board. 

Please call your Member of Congress to express your opinion of our plan at 202-225-3121.