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Automotive News & Views Do You Favor A Government Loan To The Detroit 3?
3958 messages, Last post on Oct 02, 2009 at 4:52 PM
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The following should provide some clarification for this discussion... "Auto loans could speed retooling BY JUSTIN HYDE • FREE PRESS WASHINGTON STAFF • September 12, 2008 WASHINGTON -- The auto loan package before Congress could save Detroit's automakers billions of dollars and speed their ability to refit factories for hybrids and other fuel-saving models that customers want and regulators demand. With just two weeks left before Congress calls it quits before the election, automakers and Michigan lawmakers worked Thursday on ways to broaden the $25-billion loan package and win approval from President George W. Bush. Automakers have support of Democrats and some Republicans in both chambers, but the Bush administration has yet to signal its approval, and environmental groups issued their first organized opposition to the plan Thursday. QUESTION: What could the loans pay for? ANSWER: Under last year's energy law, the loans could pay for up to 30% of the costs for factory retooling. But the cars or trucks that the remade factory would build have to top their direct competitors' fuel economy by at least 25%. General Motors Corp. could qualify for a loan to help convert the Hamtramck plant to build the Chevrolet Volt -- a car that drives its first 40 miles per day without a drop of gas but relies on unproven battery technology. But Ford Motor Co. wouldn't be able to get a loan that would cover retooling Michigan Truck in Wayne to build relatively conventional, gas-burning small cars. Q: Could the rules be changed? A: Automakers and Michigan lawmakers are hammering out proposed changes that would loosen some of the restrictions, allowing the loans to cover more retooling costs. Q: Why are automakers pushing so hard for these loans? A: GM and Ford are expected to burn through $24 billion in cash this year, and none of the Detroit Three expects a recovery in 2009. Those losses crimp Detroit's ability to add hybrids, electric vehicles and other high-tech vehicles to their lineups, even though GM and Ford still plan to spend $7 billion each this year developing new models. Because their finances are so bad, Wall Street is quoting interest rates of roughly 15% for loans to automakers. The $25 billion would be lent by the U.S. Treasury, and the government interest rate would be closer to 5% -- saving $100 million per year for every $1 billion in loans. The $25-billion program was approved last year, but Congress did not provide the $3.75 billion that the plan is estimated to cost. It originally was billed as a way to help automakers pay for meeting the 35-miles-per-gallon fuel economy standard by 2020, but the government estimates Detroit will spend $30.5 billion just to meet the targets for 2015, a cost estimate the automakers say is too low. High oil prices may push the market to the 35-m.p.g. target sooner than 2020, increasing the pressure on automakers to retool. Q: How much could it help? A: JPMorgan analyst Himanshu Patel said Thursday that if approved, a $25-billion loan program could "materially curtail bankruptcy risk" for GM, Chrysler and auto parts suppliers. Patel estimated that the loans could cover up to $6 billion of GM's costs in 2009 -- about as much as he expects the company to burn in cash. That report sent GM's shares up 11.6% Thursday. Q: Is it a bailout? A: Previous bailouts for Chrysler, airlines and Wall Street firms came as they stood at the brink of failure. Auto executives and Michigan lawmakers say the loans don't fit that pattern, noting the program wasn't called a bailout last year and was pledged to help reduce U.S. demand for oil. Critics say there's no other name for it and that the financial risk to Detroit's automakers has never been greater. Q: Can foreign automakers apply? A: Yes, but so far they've shown little interest. Under the current law, the loans can be used only on plants that are at least 20 years old. That rules out many foreign plants in the United States, but Toyota, Honda and Nissan all have at least one assembly plant that could qualify. It also rules out several plants of Detroit automakers, such as GM's Delta Township SUV plant and Chrysler's engine plant in Dundee. Ford would likely have to argue to include Dearborn Truck, since it opened in 2004, even though it's part of the historic River Rouge complex. Honda has said it won't take part in the loans. Toyota said it hasn't taken a position on the program but doesn't want it to disadvantage any particular company. Q: Can U.S. automakers use the money on foreign plants? A: No. The loans can go toward plants in the United States only. Q: Who else qualifies? A: Parts suppliers would also be able to apply for the loans to retool, under the same guidelines that apply to automakers. Q: Can the industry get more than $25 billion? A: Not likely this year. But don't be surprised if the industry succeeds this month and comes back for more when Congress returns in January. Q: What would automakers have to give up? A: That's a $25-billion question. So far, there's no sign the industry would have to make additional sacrifices to win approval; automakers contend the 35-m.p.g. standard was their concession. But other aid plans, including the Chrysler bailout, have required cuts and belt-tightening in return. Environmental groups -- including the Union of Concerned Scientists and the Sierra Club -- asked lawmakers Thursday to tie the loan to even tougher fuel economy standards. 'The industry created the mess it's in now, and did it while laughing all the way to the bank," said Joan Claybrook, president of Public Citizen. "It's time for these companies to give back to the American people.' "
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Replying to: hpmctorque (Sep 12, 2008 1:05 am) So the auto manufacturers can't figure out how to hit 35 mpg when given 12 years? Maybe they need to review the size, weight and engine displacement of their current models? Bigger and more power is not the correct way to go to get fuel economy. Maybe the average vehicle should be 2500 lb, 165" long, and a small (1.3L) 4-cyl turbo or a small diesel with 120hp or so. |
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We seem to be heading in that direction, kernick, although I don't think the "average" here will ever get quite that small. The challenge in the U.S. has always been to produce small cars profitably. If that's what the American public had wanted all along, and motorists had been willing to disassociate themselves with the notion that bigger means better and small is cheap, our domestic manufacturers would have supplied these cars. |
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Profits of Japanese car sales, made in the USA, go to corporate HQ in JAPAN! So why did the UAW worker drive a Toyota or Volvo to work without any guilt? 
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Replying to: euphonium (Sep 12, 2008 11:26 am) I doubt many auto workers drive Volvos but those driving Toyotas, Nissans etc. probably realize that while the Japanese makers are adding American plants and jobs thoise headquartered in Michigan are closing American plants, cutting jobs and shipping them off to Mexico and Canada. |
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Third party presidential candidate, Ralph Nader, is coming out against GM, Ford, and Chrysler's bid for $50 billion of low interest federal government loans.
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Replying to: gagrice (Sep 13, 2008 5:44 am) I guess he won't be carrying Michigan then.
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Replying to: andys120 (Sep 13, 2008 8:15 am) Meanwhile, back to the topic, the bailout number is now down from $50 million to $25 million. Sounds like a car dealer tactic.  Is that number more palatable?
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