A bailout for car buyers?

AP Photo/Scanpix, Adam Ihse, File

Pressured by Congress and President-elect Barack Obama to come up with concrete plans to turn themselves around, Ford and GM have looked for help from another government: Sweden's. According to the Financial Times, the car makers sought financial help -- possibly loan guarantees, possibly direct aid -- from the Swedish government to shore up their Volvo and Saab subsidiaries, respectively. The aid, which Swedish officials have since said couldn't be direct (under EU rules), would help the companies unload their Swedish-born units onto other auto manufacturers.

Selling those brands would narrow the Big Three's product lines, which some analysts say would make the companies more profitable (if that's the right word in the context of companies that are losing billions of dollars quarterly). But it wouldn't boost the flagging demand for cars, which is a big part of the bind they're in today. That's why some people -- most notably Sen. Barbara A. Mikulski (D-Md.) -- have called for the government to help the Big Three by subsidizing car buyers. Judging just by the outline on her website, Mikulski's plan wouldn't distort competition or violate trade pacts because it would help Toyota and Honda at least as much as it would help the Big Three. In particular, it would make the interest on car loans deductible for low- and moderate-income families and individuals who buy a new car by the end of 2009, regardless of the make.

A bolder proposal comes from Washington Monthly magazine in a piece by Jeffrey Leonard, the chief executive of a private-equity firm whose holdings include a piece of a Bangalore start-up that makes electric cars. Leonard argues that the Big Three's huge unsold inventory hobbles the companies' efforts to remake themselves. His idea: have Uncle Sugar rebate up to half the cost of a new American car. (By American, he means the models built by GM, Ford and Chrysler, not the ones rolling out of foreign-owned plants in the U.S.) To qualify their cars for the rebates, though, each manufacturer would have to agree to a restructuring overseen by the federal government, and to give the government preferred shares of stock.

I'm not keen on the idea of giving one American-made product subsidies that are denied to other American-made products. But as we head toward Year Two of the current recession, it's tempting to use tax law to boost spending on durable goods -- a category that has fallen off sharply. Nevertheless, numerous economists say that it's difficult to change behavior by cutting taxes temporarily, which is why income-tax rebates don't translate well into spending increases. Would providing a one-year window to buy a generously subsidized car produce different results? Would you buy a new American car in 2009 if the feds covered half the cost?