Detroit 3 now seek $50 billion in U. S. loans
Say they need funds for hybrid retooling
WASHINGTON — Automakers plan to urge Congress to support funding up to $50 billion in low-interest loans over three years to help them modernize their assembly plants and develop next-generation fuel-efficient vehicles.
Industry executives say the loans, which are twice the amount authorized in last year’s energy bill, are a top priority when Congress returns next month because of the declining fortunes of Detroit’s automakers and tightening credit markets.
Congress authorized $25 billion in low-interest loans in last year’s energy bill, but the auto industry’s allies in Congress have been unable to get funding for the plan.
The loans would provide low-interest credit for up to 30 percent of the cost of retooling facilities to build hybrids, plug-in hybrids, electric cars and other alternatives.
Detroit’s automakers have struggled this year amid a sluggish economy and consumers shunning large sport utility vehicles and trucks because of high fuel prices. General Motors Corp. reported a second-quarter loss of $15.5 billion and Ford Motor Co. reported an $8.7 billion loss.
Auto industry executives have argued that the loan program would not represent a bailout, but would be similar to aid lawmakers have given to Wall Street investment banks and struggling mortgage firms. They also note that auto companies face tens of billions of dollars in costs from new fuel economy regulations.
Congress would need to appropriate $3.75 billion to provide up to $25 billion in low-interest loans to car companies and their suppliers, according to a July 25 letter to House Democratic leaders.
The plan, which is still being discussed, calls for $25 billion in loans to be available in the first year, followed by an additional $15 billion in the second year and $10 billion in the third year, industry officials said. To activate the full $50 billion in loans, Congress would need to set aside about $7.5 billion to guard against a loan default.
“Next year is going to be a make-or-break year in terms of survival,” said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Mich., which oversees $22 billion in assets, including GM and Ford bonds. “Any help like these government loans would be a huge boost.”
Standard & Poor’s said Aug. 19 that U. S. light-vehicle sales will fall to 14.2 million units this year from 16.1 million in 2007 and drop again to 14.1 million next year.
“This is a horrible idea, another transfer of funds to failed ventures,” said David Littmann, senior economist for the Mackinac Center for Public Policy in Midland, Michigan, which describes itself as a supporter of free-market ideals. “If this were a good idea, the market would price the debt accordingly and give them the money.”
The auto industry’s future has been a top issue in Midwest battleground states key to the presidential race. Sen. John McCain had opposed the retooling efforts, arguing that his $5,000 tax credits for consumers who buy fuel-efficient vehicles and a $300 million battery prize would accomplish the same goal.
But in a statement released Friday, the Arizona Republican said Congress should fund the loan program in the energy bill: “I believe we should fund it and take action that will assist Detroit and its suppliers in making it through this difficult time of transition.”
Douglas Holtz-Eakin, McCain’s top economic adviser, said the conditions had declined for auto companies seeking access to capital. “It’s a common sense response to the realities on the ground,” he said.
Democrat Barack Obama previously outlined support for the loans, and a 10-year, $150 billion program for green manufacturing. Obama’s campaign said Friday they would support the $50 billion loan program.
