Cheap loans are not the only way to aid the domestic auto industry, there are some other policies that might be a big help in the longer term, and insure the success of the short term loans. Here are a few:
1) Encourage demand. Congress could offer tax credits for people who buy a new vehicle (it could be only for fuel efficient vehicles, to pacify the Democrats). Congress could make interest on new vehicle loans tax deductible.
2) Limit supply. If we placed import tariffs on certain foreign manufacturers who are determined to be unfairly supported by their governments, or whose governments don't allow free entry to U.S. made cars (Hyundai/Kia, for example), we could help domestic car sales. Or, perhaps, import tariffs on car makers who do not meet CAFE standards (BMW). Ronald Reagan is credited with saving Harley Davidson by slapping a 45% import tax on foreign made motorcycles.
3) Buy vehicles directly. The federal government could go on a buying spree, and replace most of its fleet of official vehicles with new ones. It could also give grants to the states to do the same. Consider all of the cars and trucks that the military, police, and other agencies must have.
4) Ensure availability of car loans. The government could take steps to require banks who have accepted TARP funds, and who are in the car loan business, to write car loans to people who have jobs and reasonable credit scores.
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