Help car buyers, not car makers
What’s the point of giving taxpayers’ money to car manufacturers so they can produce more vehicles that won’t be sold? It’s better to give money to customers to buy the cars.
The UK is following the US in bailing out its motor industry. Or in Britain’s case, bailing out India’s motor industry. Even though Tata was so rich nine months ago it could pay more than £1bn to buy Jaguar and Land Rover it now wants as much again in state aid to keep it going.
But keeping production lines moving is pointless in any country when people are not buying the finished vehicles. It is creating non-jobs as well as creating so much stock the market will be flooded, forcing prices down and thus making fragile companies even less viable.
It is better to hand taxpayers a voucher giving, say, 25 per cent off the price of a new vehicle for a limited period. That way the buyer has to spend up £3 for each £1 of state aid – and the taxpayer gets a direct benefit for his compulsory investment.
There would need to be anti-fraud clauses (no resale for two years, for instance, no second market in vouchers and a discount ceiling of, perhaps, £3,000) and the discount could vary - but it needs to be deep. The trouble with the UK’s Vat cut is that it expects the public to spend £115 to save £2.50: not surprisingly consumers are unimpressed.
The UK Vat cut is the equivalent to a ‘buy 46, get one free’ offer. As Boots demonstrates, it requires a 2-for-1 ratio to stimulate sales.
But if governments are to hand out cash they must direct to where it will work. In the US that may be car companies because it still has a large domestic auto industry but most vehicles bought in the UK are made abroad or by foreign companies.
True, cars are built in Britain by foreign firms, thus employing British workers, but they use imported components and commodities from abroad. Well-directed state intervention is best injected into labour-intensive industries.
Governments would do better to study the meal offers regularly run by daily newspapers and restaurant chains that offer one main course free when two dine. It is a 1-for-1 - buy-one-get-one-free - ratio, but by the time diners have bought starters, deserts or drinks they have probably spent £3 for each £1 saved. However, most of that money goes into the domestic economy – and most into staff costs.
That is money better spent than helping car companies to produce more unwanted vehicles.
