Cash For Trash

One of the developments that drove the market this week was the news that GM wouldn't need any further financing from the government in March. Which is great. But the reason wasn't that auto sales bounced back to life. It was that they have been able to extract more blood from the stone than they expected.

G.M., the nation’s largest automaker, issued a statement saying that it had told President Obama’s auto industry task force, which is reviewing the restructuring plan that the company submitted last month, that its March financing request “would not be needed at this time” because it was making more progress than expected in reducing costs.

The statement did not specify whether G.M. still expected to need the full $30 billion that it had requested.

“This development reflects the acceleration of G.M.’s companywide cost reduction efforts as well as proactive deferrals of spending previously anticipated in January and February,” the statement said. “G.M. will remain in regular contact with the presidential task force on the auto industry on the status of G.M.’s restructuring actions, its liquidity position, timing of future funding requests, and other relevant topics of mutual concern.”

What is missing in that report is the selling of cars. They can cut as deep and hard as possible, and force their union to knuckle under as well, the way Ford did this week. Ultimately, that will reduce wages across the industry, and in the non-union shops as well, as everyone races to the bottom. But again, the problem is that nobody is selling any cars.

I think we should seriously consider the German "cash for trash" model:

Amid the gruesome headlines generated by the world's auto industry these days, it almost read like a typo: new car registrations in Germany rose 21% year-on-year in February, the country's Association of the Automotive Industry (VDA) announced March 3. This, though, was no error. The 278,000 cars put on the road, crowed Matthias Wissmann, VDA's president, amounted to "the highest level of sales in the month of February for ten years."

Why the splurge? German drivers have latched onto a juicy new deal. Under a scheme started in January, car owners who trade in a vehicle more than nine years old for a new, greener model can expect $3,172 from the German government as well as a break from paying road tax for at least a year. Similar "scrapping schemes" have been launched in recent months in France, Italy and Spain. Now motor manufacturers in Britain are pleading with its government to follow suit.

You can do more to fight global warming by improving performance at the low end than by giving everyone who has a moderately efficient vehicle a Prius. A "cash for trash" scheme would do just that by dramatically increasing the fuel economy of the overall American fleet, with the added benefit of jump-starting sales for the moribund auto industry. There's legislation on this, and seeing how Germany and other nations are using this plan to boost their own homegrown industries it would be in no way protectionist to do the same for the Big Three. If you want to sell cars, subsidize the overhaul of the fleet.