House approves $25 billion loan program for automakers

DETROIT -- The auto industry moved a step closer to winning the first of two battles it's been waging in Washington for the past few weeks: A $25 billion direct loan program for automakers and suppliers was attached to a broad government spending bill approved Wednesday by the House of Representatives.

The bill, a "continuing resolution" that would continue to fund the federal government past the start of its new fiscal year on Oct. 1, includes the $7.5 billion needed to cover costs required to start the loans flowing. Approval by the Senate and the President's signature are expected in the next few days.

The second battle, however, over rules governing how the loans will be doled out now won't be decided until after the Presidential elections. That's a setback for the industry.

Rebecca Lindland, an analyst with Global Insight, says the fact that the industry is getting the loans is a good thing, but not knowing who will be eligible and what projects it can be used on is still a big question.

"It's like getting an early Christmas gift and not being able to use it until spring," she says. "The value of this can't really be evaluated until they know the parameters. I have to reserve judgement until the explanation for how they can use this is clear."

Automakers and suppliers will happily take the loans, which will carry far lower interest rates than many of them can get from private sources these days — if they can get credit at all in the current crisis. But getting the rules written before the elections would have given the industry more clout in arguing for maximum flexibility in what qualifies. Michigan and Ohio have emerged as key states in the presidential election, and currying favor with Rust Belt voters is a major goal for both parties.

The bill passed by the House calls for the rules to be written within 60 days of the bill passing, meaning they likely won't be done until late November or early December.

"The rules governing the distribution of the loans may become more onerous as the desire to win Michigan/Ohio votes would obviously become irrelevant after the November presidential election," says Himanshu Patel, an analyst with JP Morgan, in a recent research note to investors.