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Assessing The Trade-In Value Of Our Small Businesses

Thu, 06/04/2009 - 9:06am
by Jeff Reinke, Editorial Director, IMPO

It’s rare that I’ll offer my condolences to the politically tunnel-visioned, but I feel obligated to do so for Dianne Feinstein, a democratic senator from California. Senator Feinstein, who authored the original Cash for Clunkers bill, has seen her solution for controlling auto emissions transition into another plot to help those who simply refused to help themselves.

For those unfamiliar with the legislation, Feinstein’s original bill offered vouchers in the $4,500 range for vehicle owners who traded in their current vehicle for a more fuel efficient model. Although discussions were still in place, the types of vehicles being targeted for the trade-in were older models that could effectively be scrapped and removed from the roadways, while those considered for the purchasing incentive were primarily of the hybrid variety.

The current legislative “compromise” offers vehicle owners purchasing incentives of up to $3,500 for upgrading to vehicles that improve fuel usage by as little as two miles-per-gallon, or up to $4,500 for improvements of just five MPG. There is no stipulation on the type of vehicle being traded in or purchased, except that the new vehicle carries a higher fuel efficiency rating.

Feinstein has voiced concerns about these compromises, citing the fact that less efficient vehicles like SUVs would qualify for the voucher without having any type of positive environmental impact. She was also able to put down her Greenpeace-shaded glasses in understanding that the bill is essentially another way to help the struggling automotive marketplace by stimulating wider-spread sales efforts.

In my opinion, both versions of this bill shoot the economy in the foot, but at least Senator Feinstein’s plan wasn’t presented under the veil of corporate welfare for GM, Ford and Chrysler. The Obama administration says they feel such a program could generate sales of up to one million new vehicles.

The ironic thing here is that when people think of fuel economy, I doubt that bow-tie or blue oval logos flash into their subconscious. Such an incentive could actually be another nail in the coffin for the “Big 3”, but from a design perspective there is the potential for added funding to flow through the pipeline in developing components and systems that lead to greater fuel efficiency. In this respect I can see some benefit, but the powers that be have missed the primary impact of such a bill.

In my opinion, the right compromise comes from the Automotive Service Association. ASA represents a significant percentage of automotive repairers around the country, and has lobbied for a repair alternative to be part of any Cash for Clunkers initiative. Essentially, this would allow older vehicles that still have some life in them to be tuned up and made more efficient through a variety of maintenance services. These services could be subsidized by Cash for Clunkers funding.

This would appear to be a win-win, with negative environmental impacts subdued through the option of either vehicle repair or replacement. Federal funds would be funneled through both the larger OEMs, as well as the small business owners that purchase varying parts, supplies and consumables, and employ a fair number of middle class workers. The automotive repair marketplace is estimated to include about 1.5 million technicians, service managers and support personnel.

This would provide varying options and support of multiple automotive outlets. But it looks like the Obama administration is focused on the “bigger” automotive picture, especially when you examine the situation from the perspective of these small business owners.

Billions of dollars were funneled to the Detroit OEMs. Funds that originated from tax dollars collected from small businesses like the 300,000 automotive repair facilities found throughout the U.S. To show their gratitude the government is now trying to take away repair opportunities from these businesses to further assist those same financially irresponsible tax dollar sponges. Remember, new vehicles are being covered by increasingly longer warranties that are obviously honored only at affiliated dealerships. So although there is an interwoven relationship between independent repairers and vehicle makers, this small business owner just helped fund the revival of his largest competitor and effectively limited his own revenue opportunities.

To me, Cash for Clunkers is ridiculous. The main beneficiaries will not be the struggling automakers because if a buyer is focused on fuel efficiency it’s the Toyotas and Hondas of the marketplace that will benefit. This will trickle down to their suppliers and growing manufacturing presence in the southeastern U.S., but what about the burgeoning unemployment levels that will be experienced in the repair sector? What about those small-to-mid sized companies supplying these shops with tools, equipment and supplies?

Furthermore, what’s really troubling is that this is just a microcosm of the damage current economic programs could have on our small businesses, and the vitally important role they play in our marketplace and society. Small to medium-sized companies are the bedrock of the American Dream, and the foundation on which our economy is founded. It’s the ability to try and compete against the big boys and do things one’s own way that gives us a clearer, more positive viewpoint of tomorrow and the days that follow. Even in today’s more global economic structure, new entities drive competitive forces that benefit all involved.

The spirit of fair competition built our economy and the drive to innovate will bring it back. Although the rewards of a capitalist approach can be great, the journey is difficult, requiring the right amount of risk-taking and an abundance of hard work and dedication. Those who take this journey don’t need the government stimulating unfair competitive practices in adding to their challenges.

Our leaders have assessed the value of our automotive manufacturers at well into the tens of billions of dollars. It makes you wonder what the price tag should be for those who are footing the bill.

What's your take? Email jeff.reinke@advantagemedia.com


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