Posted by: David Kiley on October 1, 2008
President Bush on Sept. 30 signed a broad spending bill that keeps government operating in the new fiscal year, and includes $7.5 billion to pay for a $25 billion loan program to help automakers and supplier companies transition plants to building more fuel efficient vehicles.
General Motors, Ford and Chrysler are all facing liquidity problems as they try to restructure amidst the current economic calamity, and develop new models that will help them meet stricter fuel economy regulations between 2015 and 2020, as well as increased consumer demand for those vehicles. Some analysts believe GM, for example, coud hit a critical shortage of liquidity by the middle of next year.
Starting today, the Department of Energy will begin a two month process in which it will write the parameters around which the auto companies can apply for the loans. Broadly speaking, each company will have to show that the money will be used to modernize plants and technology that will deliver more fuel efficient vehicles to the public.
Last week, auto industry reps were lobbying to loosen language in the bill and the DOE guidelines. Representatives of the Big Three, for example, expressed concern that the language would be so strict that they would have to show that vehicles coming out of a specific factory were 25% more fuel efficient than the previous vehicles coming out of the same plant. The executives said they needed more flexibility than that.
Those same executives were hopeful that the funds would be available by the first quarter of 2009. The Bush Administration, though, indicated late last week, to the shock and dismay of the auto companies, that funds probably couldn’t be released for 18 months because of procedural rules for releasing government money.
Though the money was initially viewed as a help to transition auto plants and keep jobs in the U.S., it is now seen as a vital lifeline to the companies.
GM, for example, will have begun spending money to transform its Lordstown, Ohio plant to build highly fuel efficient Chevy Cruze sedans by the middle of next year. Ford will have already begun spending moey to transform its Michigan Truck plant to build small cars. Both Chrysler and GM are going to spend big trying to bring plug-in electric vehicles to U.S. driveways by the end of 2010 and beginning of 2011. All those vehicle programs depend on supplier companies that are also facing liquidity issues.
It could be that unless Congress or a new administration acts to streamline the release of funds next year, that the money won’t be kicking in until 2010.