Tags: detroit | bailout

Carmakers Not Qualified for Previous $25 Billion?

By    |   Thursday, 13 November 2008 12:49 PM

Struggling U.S. automakers have lots of reasons to be making the rounds in Washington, begging for more aid. Their business is colder than their hometown Detroit Lions, for one thing. (The Lions are 0 and 9, if you didn't know.) News reports about the industry often include the words "impending" and "bankruptcy." Their stock prices? Don't even ask.

But here's one thing they don't mention: It's possible they want more money partly because they can't qualify for the $25 billion in loans to develop more fuel-efficient vehicles that Congress approved in September.

Yes, that's how bad things have gotten. The Big Three, or one or two of them, anyway, may no longer be eligible for their own bailout.

Let's rewind a bit here. This fall, Congress voted that $25 billion in loans on the theory that automakers and suppliers deserved a government boost to help them develop products that would meet higher mileage requirements and lessen US dependence on imported oil.

Of course, as New York Times columnist Tom Friedman pointed out on Nov. 12, the government has never had to subsidize Apple to build innovative stuff that customers actually want, so why should we do it for GM? But let's just set that opinion aside for the moment.

The Department of Energy is going to oversee this loan program, and it raced to set up the regulations governing the program so that cash could begin moving as soon as possible. OK, maybe "raced" isn't exactly the word, but this is Washington, and the Energy Department got it out the door in record time. The interim final rule for the Advanced Technology Vehicles Manufacturing Incentive Program was published in the Federal Register on Nov. 12.

Normally, that kind of thing takes a year. Anyway, the rules for the program are eye-opening. To qualify, advanced technology vehicle projects must hold out the promise of a 125 percent increase in fuel economy over the average mileage of vehicles with similar attributes. But the baseline for this mileage measurement isn't this year's models. It's vehicles from 2005.

In doling out the money, the Energy Department says it reserves the right to set priorities based on which technologies seem most promising. That's something the auto companies didn't favor, as they don't want the government involved in "picking winners," according to their comments on the regulation.

Then there's the part of the rule that includes the phrase "financially viable." Under the Energy Department rules, to qualify for a loan, automakers or parts manufacturers have to demonstrate that they won't need any more federal money to complete the project. They also have to demonstrate a "reasonable prospect" that they can repay interest and principal on the loans when they come due.

Applicants have to submit documents proving their liquidity, statements from their lenders that say they're not behind on any other loans, and — here's the kicker — "financial projections demonstrating the applicant's solvency through the period of time that the loan is outstanding."

That will be tough for the automakers to show, unless they're counting on paying back the cash before they get it. GM posted a $2.5 billion quarterly loss on Friday and warned it may run out of money by year's end without government aid. Ford is a little better off, but still struggling. Chrysler? It's privately held, so its finances are opaque.

If this rule is any guide, the Bush administration is going to be unwilling to just throw money at the automakers and hope things get better. Treasury Secretary Henry Paulson expressed something of that sentiment on Nov. 12, when he answered a reporter's question about possible automaker aid by saying "any solution has got to be leading to long-term viability."

It's true that an incoming adminstration can change regulations, as opposed to law. But as far as the auto companies and their cash flow are concerned, it appears that January might as well be 2025.

So Democratic leaders are expected to take up the issue when they return to Washington for a postelection session next week. Auto industry lobbyists have pressed House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid for an immediate $25 billion loan to keep firms operating, followed by a separate $25 billion to help cover future healthcare obligations for retirees and their dependents.

"We're in a situation where there's a great unknown about what will happen," said Sen. Debbie Stabenow, D-Mich. "And [there's] a great concern that at least one of the companies will find themselves in a situation where they cannot make it until Jan. 20," when President-elect Obama will be inaugurated.

© 2008 The Christian Science Monitor. All rights reserved. Reprinted via Rightslink.


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Struggling U.S. automakers have lots of reasons to be making the rounds in Washington, begging for more aid. Their business is colder than their hometown Detroit Lions, for one thing. (The Lions are 0 and 9, if you didn't know.) News reports about the industry often include...
Thursday, 13 November 2008 12:49 PM
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