Automakers downshift on loan requests
DETROIT -- U.S. automakers have decided to back off from their drive for $50 billion in loan subsidies from the federal government and now are focused on persuading Washington to appropriate the money to back the original $25 billion promised in last year's energy bill.
The strategy change came over the weekend after the government let Lehman Bros. file for bankruptcy protection rather than providing financing to help the investment bank find a buyer.
The automakers' push for the appropriation has new urgency after the weekend banking meltdown. The car companies already were working in a tight window, trying to get the money appropriated and settle on rules for what projects would qualify before Congress recesses for the campaign season.
Now, with Treasury Secretary Henry Paulson indicating the government's will to save ailing companies has limits, automakers feel even more pressure to get the deal done.
General Motors gm CEO Rick Wagoner on Tuesday wrapped up his speech at GM's 100th anniversary celebration and shortly after boarded a plane for Washington, D.C., to join top executives including Ford f Chairman Bill Ford to lobby for the loan appropriation.
Already in March, the feds guaranteed $30 billion in potential losses when JPMorgan agreed to buy ailing Bear Stearns. Earlier this month, the government took over mortgage giants Fannie Mae and Freddie Mac.
Paulson said Monday that he isn't ruling out future intervention, but the automakers are careful to say the loans are not another bailout.
The $25 billion was promised in the energy bill signed into law last year that raised fuel-efficiency standards to 35 miles per gallon on average by 2020. The financing was aimed at helping automakers and suppliers convert aging plants to produce more fuel-efficient cars and fuel-efficiency technologies, such as hybrid batteries.
"The industry signed up for a massive increase in fuel-economy performance, recognizing it would take some breakthrough technologies and big investments," Wagoner said after the centennial celebration. "As a part of that, a relatively small fraction of the investment the industry will have to make to achieve these improvements was to be provided for by direct loans. We're just asking that these loans now be funded."
GM on Tuesday rolled out the production version of its Chevrolet Volt, an electric car due in 2010. GM hopes Volt will symbolize its rebirth as a company with cutting-edge technology for fuel-efficient cars. The car is a project the automaker hopes will qualify for some of the backing promised by the government.
Getting money from Congress is a three-step process, and only the first has been accomplished. It passed the legislation setting up the program.
Next, the actual money to finance the program must be appropriated. The Congressional Budget Office now says the government must commit $7.5 billion to cover the costs for this program, double the original estimate thanks to the current economic situation.
After money has been appropriated, a government agency must write rules to implement the program — to determine what qualifies automakers to receive the backing.
Detroit is pushing to get steps two and three done at the same time — before November.
Shelly Lombard, an analyst at bond-rating firm Gimme Credit, says there's a 50% chance the automakers will get the loans.
"Blue-collar workers are more sympathetic victims than 'rich' investment bankers," she says. "So it's easier to defend loans designed to save close to 100,000 jobs in the shrinking manufacturing industry than it is to defend loans to Fannie Mae or Lehman."