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Auto Industry Seeking Government Loans to Build Fuel-Efficient Vehicles

Posted on September 9, 2008 by LCT Staff - Also by this author - About the author

WASHINGTON, D. C. – Auto industry allies hope to secure up to $50 billion in government loans this month that would pay to modernize plants and help struggling car makers build more fuel-efficient vehicles.

With Congress returning this week from its summer break, the industry plans an aggressive lobbying campaign for the low-interest loans. The situation is growing dire after months of tumbling sales, high gasoline prices, and consumers' abandoning profitable trucks and sport-utility vehicles.

Lawmakers authorized $25 billion in loans in last year's energy bill to help the companies build fuel-efficient vehicles such as hybrids and electric vehicles. With credit tight, automakers and suppliers now want lawmakers to come up with the money for the program – and expand the pool of money available to $50 billion over three years.

Industry leaders have argued that the loan guarantees are not a government bailout because it would hasten production of fuel-efficient vehicles and reduce dependence on imported oil.

"This is not about benefiting Wall Street," said Ford Motor Co.'s President of the Americas Mark Fields, referencing recent federal support for the investment firm Bear Stearns and troubled mortgage companies Fannie Mae and Freddie Mac. "This is benefiting Main Street, the working men and women. The auto industry is part of the backbone of the U.S. economy."

The low-interest loans, at rates of about 4% to 5%, would pay for up to 30% of the cost of retooling plants to build hybrids, plug-in hybrids, electric cars, and other alternatives.

Ford and General Motors Corp.'s credit ratings have fallen below investment grade, making it difficult for the companies to borrow money at affordable rates. Chrysler LLC, which has been heavily dependent upon truck sales, has been privately held since last year and faces similar problems getting access to capital.

"This industry could fall down, literally, or be absorbed if they don't get something in place very soon. I think it's that severe," said Rep. Joe Knollenberg, R-Mich. "Something has to happen pretty quickly because they can't compete paying 15 to 20% (interest)."

Industry lobbyists pressed the issue at the recent presidential conventions in Denver and St. Paul, Minn., and members of Michigan's congressional delegation have talked to legislative leaders and the Bush administration about the program. Discussions surround a three-year plan that would make $25 billion in loans available in the first year, followed by $15 billion the second year and $10 billion in the third.

To provide $50 billion in loans, Congress would need to set aside about $7.5 billion to guard against a loan default.

Automakers want to secure the money for the loans before November's election because a new president and Congress could delay the companies' ability to access the loans.

The White House said last week it was talking to members of Congress and the industry about the financing. The issue, meanwhile, has gained a foothold in the presidential campaign in states with many auto workers such as Michigan and Ohio.

Democrat Barack Obama has criticized Republican rival John McCain for not supporting the full $50 billion loan program. McCain said last week he supported fully covering the $25 billion loan program in the energy law. Congressional leaders have said they are open to an expanded program. But the industry will face a compressed schedule in an election year when many lawmakers will push to leave Washington so they can campaign for re-election this fall.

"We're hopeful that we're making an effective case to get this done between now and the end of this session," said John Bozzella, Chrysler's vice president for external affairs and public policy.

The loans would be available to foreign automakers, but those companies are not expected to seek the money because they are in a better financial situation and priority would be given to companies with plants 20 years or older.

Source: Associated Press

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