Bush Approves Automaker Loan Program: But Will It Arrive in Time?

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.

Reader Comments

Jeff B

October 1, 2008 4:32 PM

Another total waste of taxpayer dollars by our failed Government. So now we decide to reward failed public companies whose strategies have failed to address product challenges obvious to every eighth grader and virtually all foreign-based competitors?? This is nothing but welfare to an industry which bribes our elected officials with campaign donations, but can't build products people want to buy. Just watch as these "loans" become taxpayer debt.

Praveen

October 1, 2008 5:52 PM

I think US needs to stay-quiet and not preach when other countries try to prop up their own corrupt and inept public companies....

Gimme a BREAK

October 1, 2008 7:05 PM

GM and Ford are over $50 BILLION in debt; whether UNFUNDED healthcare and pension liabilities are included - I do NOT know. But please tell me, oh exalted one: HOW could they possibly PAY BACK the TAXPAYER, when they have produced mostly, grossly over-priced, and unwanted garbage for 30 years, and have a current market value of $7.5 billion? Chrysler appears to be in a death spiril and is PRIVATELY OWNED = NO workers' money for THEM!! Looks like more LIAR LOANS; been there, done that...and, the US Taxpayer is getting the Industry and Congressional Green Weenie.

tg

October 1, 2008 10:10 PM

the big three had more than enough time to compete. delay, delay, delay.

Jan B

October 2, 2008 10:40 AM

In view of peak oil and climate change all-electric vehicles are the only reasonable course, and fortunately the trend in this direction is getting stronger by the day.
These cars will be built and bought in the US, possibly by foreign companies, but by American workers, and yield taxpayer dollars.
The Detroit dinosaurs won't be fast and flexible enough, and cannot be saved by any amount of taxpayer dollars.

A. Uditor

October 5, 2008 10:18 PM

If the Ford Motor Company is incapable of competing in a global freemarket without the US government holding its hand then it has already failed Henry Ford and its people.

This appear to be just one more American "bail-out" using TAXPAYERS moneycecause the company cannot survive on its own in the global environment.

The failure of a company like the Ford Motor Company should be recognised today. Let it fall on its own sword now. Otherwise not only will the Govt/US banking system be brought to its knees but the entire resources of the American people - the USA.

Tanveer Singh

October 7, 2008 11:39 AM

Another Bailout, what are the Boards and the CEOs and the Marketing team for, couldnt they see what was coming for in the fuure, obviously the Big 3s sales havent plunged suddenly, its not that they have tough times now.., it was to come by producing trucks giving low mileage and heavy on price too.

i fail to understand why or how much difficult it is for the top managemtn to forsee the future, of what was to come, look at Toyota how have they managed from being Japan No1 to World's No1, couldnt they have taken a clue from it..

the government should be quite harsh on the management of taking such policies which led to the continous debacle of these big American companies, or atleast take them to a B-School.

untill then they will not learn their lesson and will continue like this.. What happened to Rick Wagoner rescue plan?...is anybody answerable......

MarkSpizer

May 3, 2010 9:37 AM

great post as usual!

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