Dr. Raynor teaches finance at the State University of New York at Delhi, and is periodically a visiting professor at Universidad Catholica Santo Toribio De Mogrovejo in Peru. He has worked on a number of projects in other areas of Latin America, and was also a visiting professor in China. He is especially interested in international trade and labor issues, and has previous private sector experience in the banking industry.

The economic stimulus plan that was so controversial just passed Congress. While recognizing that the economy needs immediate relief, an additional stimulus plan should be considered in order to provide incentives for widespread adoption of new fuel efficient cars. In addition to the $600 rebate per individual and $1,200 per couple under the current plan, why not offer $1,500 rebates to anyone willing to buy a new higher mileage car? If significant numbers of American families traded in their SUVs or older gas guzzling vehicles, the impact could be dramatic:

Helping the auto industry
The domestic manufacturers, General Motors, Ford, and Chrysler, as well as others that manufacture or assemble cars in the U.S., such as Toyota and Nissan, would see an immediate increase. Not only would the companies stabilize financially, but many auto sector jobs would be saved.

Helping Michigan
Michigan is the State suffering the most economically, and a plan of this type would directly enhance conditions where help really is needed.

Less dependence on foreign oil
A significant increase in fuel efficient cars would make us less dependent on foreign oil. Modestly priced non-hybrid cars using existing technology are very capable of obtaining miles-per-gallon (mpg) in the mid 30s. When people trade in these new cars 5-7 years from now, newer technology and newer generations of even higher mpg cars should be available. In other words we can do a lot right now with current technology, just by encouraging people to switch to higher mpg cars already available on a large scale basis.

Easing the credit crunch
Many banks have essentially stopped lending in some areas of the country. To overcome this, the government could provide some type of loan guarantee under strict criteria to avoid a situation similar to the subprime mortgage mess. This might be modeled after the Small Business Administration (SBA) approach. Thus, banks would have an incentive to lend if the government was essentially cosigning for a portion of the loan, again under prudent guidelines with appropriate oversight. The financial sector is extremely stressed, and increasing auto portfolios would provide additional stability. A government-backed program would help assure significant numbers of people would take advantage of the program.

Helping the environment
A significant increase in fuel efficient cars would have a positive impact on the environment.

Improving safety
Many advances have made smaller cars safer than ever. Overall highway safety may be enhanced.

Facilitating adjustment
An incentive program of this type would help consumers more quickly adjust to higher mpg car trends for the future.

Helping American infrastructure
Highway infrastructure may deteriorate less rapidly with smaller, more fuel efficient cars. While it may not be a "silver-bullet" for addressing the immediate problem of crumbling infrastructure, at least, future budgets may benefit.

Using tax incentives
The tax incentives developed a few years ago to encourage hybrid purchases could be applied to non-hybrid, but high mpg cars. This way, the true cost of ownership is reduced on even modestly priced non-hybrid cars. If individual States temporarily eliminated or reduced sales tax, the ownership cost would be reduced further. States might be willing to consider this, given current economic conditions and the benefits of having newer, "greener" cars on the highway. Significant tax revenue loss may not be a factor if cars sales are weak anyway.

How it could work
Two assumptions are made for purposes of illustration.

Assumption One
Assume a new high mpg car can be purchased for $15,000. This is very realistic, given the current status of the auto industry and its likely willingness to participate in a program of this type with approved models. The price with the $1,500 rebate proposed above, would now be $13,500. With sales tax temporarily waived, and assuming a zero interest loan from auto manufacturers offering incentives and willing to participate in the government program, the monthly payment would only be $187.50 for 72 months with no down-payment. While this would not include some additional costs, such as insurance premiums, nominal registration costs, etc., these would be offset by savings on maintenance and repairs with a new vehicle under warranty.

Assumption Two
A family that has a vehicle currently averaging 18 mpg and drives 15,000 miles per year would spend $2,500 per year on gas, assuming that it averages at least $3.00 per gallon. If this family was able to get a new car that averaged 36 mpg, the annual fuel costs under the same conditions would be cut in half to $1,250. The annual fuel savings of $1,250, would alone cover almost 7 of the 12 annual payments of $187.50, as described in Assumption One above. Or alternatively, it would reduce each monthly payment by more than a half to an amazing $83.33. Not bad for a brand new fully warranted car with no money down. And all of this assumes the car is bought outright. If the older gas guzzler is traded in, the monthly payment would be even less.

Given current economic conditions, it might seem counter intuitive to encourage families to take on additional debt, even if is subsidized. But then again, these are not normal times. This may have more merit than giving $600 tax rebates ($1,200 for couples) to spend in the big box stores on electronics that are made in China.

Many might suggest that advocating no-money down purchases risks repeating the no-money down housing sales that helped fuel the subprime mortgage mess. Under strict criteria and proper regulation, however, it could significantly help middle-class families with their household finances and transportation needs. It could provide a direct stimulus to the auto industry, and other sectors of the economy. There is also the potential for positively influencing the environment, infrastructure and highway safety. Perhaps most importantly, it would also be a huge step forward for our nation in becoming more energy independent.

In short using incentives to put high mpg cars on our national highways is not just a way to stimulate the economy, it is an investment in our future.