Senate OKs $25 Billion in Loans to Help Automakers Produce Fuel-Efficient Vehicles

By Scott Doggett, Contributor

After spending years and hundreds of millions of dollars fighting governmental efforts to get them to produce fuel-efficient vehicles, General Motors, Ford and Chrysler today scored $7.5 billion in taxpayer funds needed to guarantee $25 billion in low-interest loans to help the American automakers produce fuel-efficient cars and trucks.

By a 78-12 vote cast during a rare Saturday session, the Senate passed a $634-billion spending bill containing the loan guarantee and sent the measure on to President Bush, who was expected to sign it. The bill is needed to keep the government operating beyond the current budget year, which ends Tuesday.

The automakers will get up to 25 years to repay the loans. Because they have sub-investment grade credit, the automakers would save more than $100 million per $1 billion borrowed in lending costs. They could also ask the Energy Department to defer repayment for up to five years.

Congress appropriated 7.5 billion taxpayer dollars to cover the costs of the loans, including the risk of default.

GM and Ford lost nearly $25 billion in the second quarter of this year, and along with Chrysler are closing plants, shrinking their work force and slashing spending.

The manufacturers and their domestic suppliers say they will use the money to offer a broader array of gas-electric vehicles, more fuel-efficient engines and plug-in electric cars that could be on the market within two years. It's unclear how the money will be divided.

The loans could be available by mid-2009, although legal and administrative procedures could delay them until 2010.

While one Democratic senator from Michigan, Debbie Stabenow, said it was unacceptable that it will take that long to get the money flowing, the other, Carl Levin, said it will still produce "a quicker shift to the advanced technology than would otherwise occur."

GM spokesman Greg Martin, in a prepared statement, said, Congress "clearly recognizes the need to move forward at this critical time to make available this source of capital for automakers and suppliers."

Martin failed to mention that America's Big 3 automakers didn't do themselves or U.S. taxpayers any favors by waiting till the market for gas-guzzlers tanked to shift from making large, gasoline- and diesel-gulping cars and trucks to vehicles that aren't conspicuous in their consumption of fossil fuels.   

The loan program was authorized, but not funded, by an energy law enacted last December. The same law requires sharply higher fuel economy standards in the 2011-2020 model years -- standards that will force automakers and suppliers to spend tens of billions of dollars on factories and equipment.

Falling new vehicle sales, dramatically higher borrowing costs and a lack of foresight compelled the Big 3 to make funding of the program a top priority. The effort included recent Capitol Hill visits this month by the automakers' highly compensated chief executives.

Industry lobbyists succeeded in getting the funding attached to a bill that Congress had to consider before going home for November elections.

The $25 billion program represents unprecedented governmental intervention in the automotive industry -- far exceeding 1979 loan guarantees for Chrysler and long-running federal support for vehicle technology research.

The loan package has been backed by both parties in Congress and is endorsed by both presidential candidates. Indeed, Democratic candidate Barack Obama has called for up to $50 billion in loan guarantees. GOP candidate John McCain, who had opposed the loans, announced he had a change of heart earlier this month.

The loans will be used to help the automakers re-tool their plants to better produce vehicles capable of meeting new federal fuel economy regulations.

Federal regulators are proposing that the companies' combined fleets average 31.6 miles per gallon fuel efficiency by 2015, up from 27.5 mpg for cars and 22.2 mpg for light trucks today. Federal law requires a 35 mpg fleet average by 2020.

The National Highway Traffic Safety Administration has estimated it will cost the automakers $47 billion through 2015 to meet the first five years of government-mandated fuel economy increases, starting with the 2011 model year.

The spending legislation was also a win for Big Oil, as it allows a decades-old ban on offshore drilling to expire on Tuesday. Democrats had hoped to extend the ban, but did not have the votes necessary in the face of stiff opposition from Republicans.

Posted by

Scott Doggett September 27, 2008, 11:54 PM

Permalink

Categories:

Chrysler, Diesel, Emissions, Ford, Fuel Economy, General Motors, Hybrid, Legislation, Plug-ins and Electric