House approves $25 billion loan program for automakers

Those carmakers do not deserve a single cent and here is why:
Who Killed The Electric Car? (Documentary)
Documentary about GM killing of the electric car. It has been here since ‘96 but they killed it off. The “gasoline” for operating this car only costs 16 cents per gallon!

DETROIT – The auto industry moved a step closer to winning the first of two battles it’s been waging in Washington for the past few weeks: A $25 billion direct loan program for automakers and suppliers was attached to a broad government spending bill approved Wednesday by the House of Representatives.

The bill, a “continuing resolution” that would continue to fund the federal government past the start of its new fiscal year on Oct. 1, includes the $7.5 needed to cover costs required to start the loans flowing. Approval by the Senate and the President’s signature are expected in the next few days.

The second battle, however, over rules governing how the loans will be doled out now won’t be decided until after the Presidential elections. That’s a setback for the industry.

Rebecca Lindland, an analyst with Global Insight, says the fact that the industry is getting the loans is a good thing, but not knowing who will be eligible and what projects it can be used on is still a big question.

“It’s like getting an early Christmas gift and not being able to use it until spring,” she says. “The value of this can’t really be evaluated until they know the parameters. I have to reserve judgement until the explanation for how they can use this is clear.”

Automakers and suppliers will happily take the loans, which will carry far lower interest rates than many of them can get from private sources these days – if they can get credit at all in the current crisis. But getting the rules written before the elections would have given the industry more clout in arguing for maximum flexibility in what qualifies. Michigan and Ohio have emerged as key states in the presidential election, and currying favor with Rust Belt voters is a major goal for both parties.

The bill passed by the House calls for the rules to be written within 60 days of the bill passing, meaning they likely won’t be done until late November or early December.

“The rules governing the distribution of the loans may become more onerous as the desire to win Michigan/Ohio votes would obviously become irrelevant after the November presidential election,” says Himanshu Patel, an analyst with JP Morgan, in a recent research note to investors.

But David Cole, chairman of the Center for Automotive Research, says the most important part of all this is that the industry will now have access to the low-interest loans.

“I think they are happy to take their chances with however the rules are written,” he says. “It frees up capital that they have to have to drive into new technology, which they need to survive.”

The $25 billion direct loan program was set up by the energy bill signed into law in 2007 and is intended to help automakers retool plants and develop technology for more fuel-efficient cars. But until now, Congress had not acted to appropriate money to fund the program, which will be administered through the Federal Financing Bank. Loan recipients may defer their loan payments for up to five years.

“We’re very encouraged with the action,” says Mike Moran, a spokesman for Ford. “Congress is facing a lot of very difficult issues, and we’re encouraged that they’re giving the indication that this may well move forward before they recess for the elections.”

The automakers have been lobbying hard for Congress to allocate the money all month. Last week, the CEOs from General Motors (GM), Ford (F), and Chrysler met with various members of the House and Senate to plead their case. They argued that the loans are not a bailout – that they were agreed to a year ago to help the automakers meet the energy bill’s mandate that their vehicles get higher gas mileage.

Those fuel economy rules call for the automakers’ fleets to average 35 miles per gallon by 2020, which will require a leap in automotive technology. When the bill was passed, estimates put the cost to the industry of reaching the new fuel standards at $85 billion to $100 billion.

The debate will now turn to the rules on who will get the funding and for what.

Last week, as GM unveiled the production version of its electric-drive Chevrolet Volt, Chief Financial Officer Fritz Henderson said it’s still unclear whether a project for an all-new car like the Volt will qualify.

“If they say it has to be a 25% (gas mileage) improvement – well, we don’t have a (previous) product like this to improve on, so will it qualify?” Henderson says. “That kind of thing needs to be worked out.”

By Sharon Silke Carty
Sept. 24, 2008

Source: USA Today

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