Bailouts: It’s a lot smarter to offer sales incentives

Published 12:00 am Sunday, December 21, 2008

An idea to help encourage potential car buyers addresses that industry’s problems from the right direction.

Last week, we reported that credit unions in Vicksburg plan to be among 2,500 in the Midwest and South pledging $22 billion in low-cost auto loans and joining with Chrysler to offer rebates to boost sales. Other automakers and lenders might join in.

Initially, the deal is to offer rebates of $500 or $1,000 on nearly all Chrysler, Jeep and Dodge vehicles financed through credit unions until June 30 of next year. “We want to be a part of something that helps our members and spurs activity locally,” said Charles Mullins, president of Mutual Credit Union, one of the three local member-based lending cooperatives that plan to participate.

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The reason this is the right approach is that it helps carmakers and dealers sell their inventories. And moving those inventories is as necessary as kindling is to a campfire. As long as buyers are credit-worthy, the credit unions eventually will recoup their investments. Their depositors face no real risk.

While there was been some talk of incentive-type approaches emanating from Capitol Hill, most of the talk there has been tantamount to throwing good money after bad. We’re sorry if anyone loses a home or vehicle to foreclosure or repossession, but we can’t see how it becomes the obligation of those who have remained current on their loans to take on the additional responsibility of bailing them out. Yet that’s the approach favored by Rep. Barney Frank, D-Mass., and others who had a direct hand in precipitating the economic meltdown of the past two months.

Now President Bush has stepped in where Senate Republicans would not — authorizing $17 billion in “loans” to carmakers. The laws of economics are clear: Paying off old debts doesn’t do much good if new debt continues to be amassed.

Getting people to buy houses and cars is the smart way to ratchet up the cycle of American commerce. Eventually, corporations, if they refined their costs of doing business, could again become profitable via this approach. It’s not as fast or easy as a blank check from taxpayers. But it stands a far better chance of long-term success.