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Loan Package May Help Jumpstart Automakers

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September 30, 2008 by   Leave a Comment

If credit remains locked up and auto sales continue to slump, the federal government’s $25 billion loan package for the auto industry could be a huge help in keeping Detroit’s downtrodden automakers afloat, according to lawmakers and industry analysts.
As reported by the Associated Press, Chrysler LLC, Ford Motor Co. and General Motors Corp., which likely will get the bulk of the loans, are losing billions and facing huge debts already as they try to remake their lineups from predominantly trucks and sport utility vehicles to smaller, more fuel-efficient vehicles.
The loan legislation, approved by Congress on Saturday, was passed to help the battered industry retool factories and develop technology to meet new government fuel-efficiency standards of at least 35 miles per gallon by 2020, a 40% increase.
With the bulk of the money apparently going to the Detroit Three, it could come in the nick of time for cash-strapped automakers who might otherwise have trouble borrowing more to cover their bills.
Government red tape, namely regulations written by the Energy Department, could delay the loans by up to 18 months. Congress specified that the agency produce preliminary rules within 60 days, and lawmakers who support the industry hope the funding arrives by spring.
Auto executives have said the government loans will speed up bringing new technology to market, but they have pledged to make more fuel-efficient models regardless of whether the loans arrive. The loans, however, could help them avoid making the choice between pursuing multiple fuel-efficiency technologies or further cuts, including more job losses, Chrysler CEO Bob Nardelli said last week.
Money is supposed to be available to the entire industry, but a clause in the legislation gives priority to “those facilities that are oldest or have been in existence for at least 20 years.”
Chrysler, Ford and GM, all of which have factories far older than that, look like they have the inside track to get the bulk of the loans.

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