Cash for $25 billion in loans for automakers near approval

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

The bill needed to fund the government past the start of its new fiscal year on Oct. 1 includes $7.5 billion to start the loans flowing and is expected to pass the Senate and be signed by the president within days.

A second battle, about rules for how the loans will be doled out, won't be decided until after the elections. The bill allows 60 days from passage for final rules. That's a setback for the industry.

Rebecca Lindland, an analyst at Global Insight, says not knowing who is eligible and what the loans can be used for leaves big questions. "It's like getting an early Christmas gift and not being able to use it until spring. The value of this can't really be evaluated until they know the parameters."

The federal loans may have interest rates as low as 5%, far lower than most automakers or suppliers could get privately. But they hoped to have rules written before the election, while they have more clout to argue for flexibility: Auto-heavy Michigan and Ohio are key electoral states.

David Cole, chairman of the Center for Automotive Research, says what matters is access to low-interest money. "I think they are happy to take their chances with however the rules are written. It frees up capital (for) new technology, which they need to survive."

The $25 billion direct-loan program was set up by the 2007 energy law to offset automakers' plant and technology costs to make more fuel-efficient cars. But Congress has yet to fund the loans, which will be administered by the Federal Financing Bank and also allow recipients to defer loan payments for up to five years.