When I was a young engineer in the 1980s, I spent three amazing years in Detroit, managing a software development team that helped Ford Motor Co. build a new service-bay diagnostic computer. Working at a Ford facility was an eye-opening experience in many ways, but I was particularly impressed by the hard work and long hours that my Ford co-workers put in. It wasn't unusual for these engineers, mechanics and managers to work 70- or 80-hour weeks as they struggled to do the best job they could and move up the many layers of the Ford corporate ladder.

Now, two decades later, we see that the dedicated work of generations of factory workers, engineers and managers hasn't been enough. The big American car companies are failing, but not for lack of effort. They're failing because of a lack of vision among top managers, compounded by the crushing costs of decades of poor decisions: bloated dealer networks, redundant product lines and cars that nobody wants to buy.

As GM and Chrysler stall, taxpayers are being asked to choose between two unattractive and unacceptable choices: cough up billions of dollars to cover huge operating losses for an indefinite period or let the companies go bankrupt and risk huge economic and human costs if they fail to recover under Chapter 11 and end up in liquidation.

I'd like to propose a third alternative.

Americans have the talent, the technology and the determination to succeed in the car business. But to do so, we must let go of the dysfunctional companies that now dominate the American car-making landscape and foster the creation of newer and smarter ones.

Conventional wisdom states that you can't just start up a car company because of the huge infrastructure required to build and sell cars at a reasonable price. Apparently nobody told that to BYD, a Chinese battery maker that just released a game-changing new car.

The BYD F6 is a plug-in hybrid electric sedan that goes 55 percent farther on a single charge than the long-awaited Chevy Volt. It recharges fast (80 percent recharge in just 15 minutes!) and accelerates even faster (zero to 60 in 10 seconds). And while Chevy expects to lose money selling the Volt for $40,000, BYD plans to make a tidy profit selling its car for less than $22,000.

BYD was founded only 13 years ago to make cell phone batteries. But with an entrepreneurial spirit that would make Bill Gates proud, BYD leaders saw an opportunity in the car business, bought a nearly defunct carmaker to avoid having to build factories from scratch, designed a new model to take advantage of their battery technology and started selling cars. They are now one of the largest carmakers in China.

BYD entreprenuers aren't successful because they're Chinese. They are successful because of their youth, vigor, spirit of innovation and insight into the needs of today's customers.

There's nothing magical about being a young company (after all, most startups fail), but the converse is true: There is something inefficient about being an old company. Very few old companies are leaders in today's global marketplace. In the computer world, for example, IBM gave way to Microsoft, which in turn is giving way to Google. At Pittsburgh International Airport, US Airways is being replaced by Southwest. Young fast-growing companies are highly focused, their leaders are visionaries and they are unencumbered by the weight of decades (or centuries) of past decisions.

How much do American automakers suffer from the unfortunate side-effects of aging? Consider this: GM has 4,000 dealers, while Toyota sells more cars with only 1,200. GM has eight different brands, Toyota has three. GM is reported to have 14 layers of management, Toyota has five.

So here's a crazy proposal. Instead of pouring tens of billions of dollars into propping up GM and Chrysler, let's start over and let the true spirit of American business take over.

I propose that we, the taxpayers, allocate $20 billion to what might be called The Startup Solution. This is roughly the amount of money that was just loaned to GM and Chrysler to tide them over for the winter.

Let's invest three quarters of this -- $15 billion -- in a new venture capital fund, run by the smartest, toughest venture capitalists we can find. (I'll get to the other $5 billion later.) Typical VC funds charge a management fee of 2 percent per year plus a share of the profits, but I suspect that for this once-in-a-lifetime opportunity we could attract the best and brightest for less.

Once the fund managers are selected, we taxpayers would become a limited partner. We would expect to get our money back, with interest, over the life of the fund, typically 10 years. Who knows, the fund even might attract private investors who would like to piggyback on our dramatic decision.

The fund managers would be given a simple mandate: invest the money with their usual creativity, care and vision to develop a new generation of domestic automakers who can succeed in today's global and green economy.

VC funds are very good at making money: Between 1983 and 2003, the average annual rate of return for all venture capital funds was 16.7 percent. Imagine: We taxpayers could save the American auto industry, preserve hundreds of thousands of jobs and actually make a profit while we're doing it.

Taxpayer money should always come with strings attached, of course (as we painfully learned recently when certain banks happily accepted our emergency bailout money and then used it to buy other banks). So we need to put some rules in place to protect our tax dollars while keeping the meddling of politicians to a minimum.

Let me suggest three simple rules. The companies receiving investments would have to:

• 1) primarily focus on making cars,

• 2) employ at least half of their workers here in the United States, and

• 3) use at least half American-made parts.

Aside from three rules, plus a reasonable amount of auditing to prevent misuse, we should give the fund managers free rein in deciding how best to invest the money.

There are several successful examples of similar arrangements here in Western Pennsylvania, albeit on a smaller scale.

Innovation Works, the local branch of the Ben Franklin Fund, is a venture capital firm dedicated to investing money from the state of Pennsylvania to create local jobs. Since 1999, Innovation Works has invested $37 million in 107 companies. These companies currently employ 3,600 people and have an annual payroll of more than $400 million.

The Technology Collaborative, Pittsburgh Equity Partners and Birchmere Ventures are similar examples of local organizations that create jobs by investing state funds in local companies.

Building a new American auto industry is a bigger task, of course, and requires a bigger checkbook. The stakes are far higher, as well.

But should we just hand over tens of billions of dollars to GM and Chrysler, who will burn through it in a few months and likely have little to show for it except for yet another hopeful but ultimately meaningless recovery plan? Or should we see what $15 billion could do if it were intelligently invested to help smart American companies build new technologies, new companies and new jobs?

OK, so what about the other $5 billion of the $20 billion I've recommended?

Let's invest it in the current employees of GM and Chrysler, helping them bridge the gap between the time their current employers lay them off and the time the next generation of automakers is ready to hire them. Those workers deserve to work for better companies, and America deserves to have them contribute to the success of well-managed companies.

Finally, what about the thousands of subcontractors and millions of people who serve the old car companies today as parts suppliers, consultants, contractors and dealers?

The next generation of carmakers, as they scale up, will need these goods and services, too. The top performing providers will find niches in supporting these new companies. The rest will close their doors and their owners and employees eventually will find work elsewhere.

The crisis in the auto industry is real and simply walking away from it is not an option. But propping up failed companies is not much better. The best long-term solution is to invest not in the past but in the future, not in the outdated Detroit methods of designing, making and selling cars, but in the proven American ethic of innovation, creativity and hard work.