Buy a Car—or Else!

TBM contributor Gabriel Bertone’s piece on the liquidity trap we’re possible currently in got me thinking about my own earlier post about sustaining a mild rally in the auto market. It’s no secret that I’ve felt since early this year that the financial sector has been sucking up a disproportionate measure of public funding while carmakers and consumers have been forced to limp along with budget bailouts. Why this hasn’t more greatly enraged the consumer is a mystery to me.

It might finally be time for serious, targeting stimulus, rather than politically expedient moves such as tax breaks and indirect spending. In terms of the auto industry, there’s definitely pent-up demand, but it’s being held back by the sluggish credit market and consumer belt-tightening.

Some automakers—Hyundai was first—have created buyback programs to effectively backstop car loans. If you lose your job, you can give your car back and escape your loan without destroying your credit score. Is it time for the federal government to get into the action and inject some liquidity into the financing arms of the carmakers while simultaneously adding another layer to the cash for clunkers legislation that recently passed in Congress?

This would be called throwing money at the problem. But with two major carmakers—GM and Chrysler—emerging from bankruptcy, plus suppliers heading into Chapter 11 left and right, and even the imports enduring massive sales declines, but still seeing sales beginning to pick up, the time is now to put the pedal down with the consumer side of the auto market. Because the banks are going to continue hoarding funds. And when the money does finally break out, it might be too late for the carmakers.