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The troubled U.S. automobile industry has the capacity to produce 15 million cars and trucks per year, but the current market will support the purchase of only nine million.
The industry answer to this problem is to downsize – close plants, furlough workers, cut expenses and produce only what the market can sell. Under normal economic conditions that is the way of the market and it is a good way.
But these are not normal conditions. The market is in crisis and the government is bent on intervention. The government has challenged the industry to restructure to avoid even more serious outcomes.
Here we suggest a more immediate but temporary procedure.
If instead of making loans or giving outright cash to the industry, the U.S. Government purchases six million cars and trucks during the next 12 months, that would put the automobile industry back in full capacity production, 15 million units per year. All the plants would hum along; all the workers would be fully employed. They would bring home full paychecks to their families. The vital parts supply chains would also keep employees at work.
But what’s to be done with the excess automobiles in the government hands? At the very least, nothing! They would already have had their most important effect.
But suppose the government gives these cars away in a grand, national lottery. Say each month the Social Security Administration selects at random half a million Social Security numbers of people above driving age. It sends out winning tickets to the fortunate selectees, tickets that entitle the winner to a free automobile at any automobile dealer. The main restriction on the selection is that a winner must trade in a similar class vehicle more than seven years old, one that he has owned and driven for over 5,000 miles in the past year.
The dealer in turn must sell the trade-in for scrap. The ticket is not transferable. If not used within one year, it is automatically canceled, and another Social Security number is chosen as winner. Other restrictions as necessary will be devised, particularly to avoid disturbing the ordinary market for the nine million cars and trucks not bought by the government.
The U.S. Government need never take physical possession of the vehicles. The factories will ship them to the usual dealers, as they do with their normal production. The cost to the government of this program figured at an average cost of $16,000 for each of the six million vehicles, will be $96 billion, small compared to the benefits of keeping plants and supply lines open, and keeping workers off unemployment lines.
The net result of this lottery would be that after a year, six million old cars would be replaced by new ones, more safe, more efficient, using less fuel and emitting less carbon dioxide. Over the next seven years these savings would pay back to the general economy the entire government investment. Furthermore, immediately six million people and their families would have new cars that they would not have purchased before.
With a new feeling of financial well being, they could spend more money on other items, thus increasing the flow of money in the real economy.
This program does not involve any new government institutions. It is temporary, say for one year, and it would give the industry time to restructure as needed in a non-crisis mode..
Harris L. Mayer