Auto industry seeking $50B in loans from Congress
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 officials said the loans, twice the amount authorized in last year’s energy bill, will be a top priority when Congress returns next month because of the declining fortunes of Detroit’s automakers and tightening credit markets.
“The amount of concern and urgency from the Detroit companies has increased in the last month and significantly ratcheted up what they’re communicating what their funding needs are,” said Alan Reuther, legislative director for the United Auto Workers union.
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 money to pay 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.
American automakers have struggled this year in 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.
The auto industry’s future has been a top issue in Midwest states that are crucial prizes in the campaign for U.S. president. Sen. John McCain, the Republican nominee-in-waiting, 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, McCain said Congress should finance 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,” McCain said.
Douglas Holtz-Eakin, McCain’s top economic adviser, said the conditions had declined for auto companies seeking access to capital. “It’s a commonsense response to the realities on the ground,” he said.
The Democrats’ presumed nominee, Sen. Barack Obama, previously outlined support for the loans and a 10-year, $150 billion program for green manufacturing.
Auto industry officials 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.
“We don’t see it as a bailout. We see it as government assistance to help retooling tied to the production of these advanced technology vehicles,” Reuther said.
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, would allow $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 loan default.
GM and Ford spokesmen declined to comment about whether their companies would be pushing Congress to raise the loan limit but expressed support for the program.
The loans in the energy bill showed how “government policy can be aligned with consumer demand and the efforts of the industry,” said GM spokesman Greg Martin.
Mike Moran, a Ford spokesman, agreed: “Congress created a program for direct loans and we’re hopeful that they can fund those this year.”
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