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$25 billion auto industry loan package approved by President Bush

$25 billion auto industry loan package approved by President Bush

James Martinez September 30th, 2008 James Martinez By James Martinez Author September 30th, 2008
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December 31st, 1969 Call it a bailout or call it an aid package, the car industry is only concerned with securing the funds it believes it needs to remain competitive as CAFE standards tighten. The federal government has taken heed of calls from both unions and the carmakers, with both houses of Congress having recently approved the loan package, and now President Bush has taken the final step and signed the bill into law today as part of an interim budget exceeding $630 billion. The majority of the budget bill will go to the Pentagon and other national security-related agencies, but in amongst the defense spending lies the automotive industry's long-sought help. Now that Bush has signed the bill, the Department of Energy will write rules to manage the loan program. The first loans are expected to be available by the middle of next year. Unfortunately the loan package that had previously been seen as a sure boon to the industry may yet prove to be too little help. The crippled financial and credit sector of the U.S. economy is taking down institutions left and right, and absent a bailout scheme for the major lenders, there will be no credit available for consumers to buy the much-improved cars the industry will use the $25 billion to build. It was the mortgage-induced credit crunch that necessitated the industry's approach to the federal government for the loan package in the first place - the then-weak but still-standing credit industry was refusing to lend money to the high-risk automotive sector. Now that the carmakers have circumvented that problem by going straight to Congress, the bottom has fallen out from under the consumer side of the market as well. The problem was summed up simply by Rep. Barney Frank, a Democrat from Massachussetts, and chairman of the House Financial Services Committee, when he said, "The greatest threat the auto industry faces right now is this credit crisis, because you buy cars on credit," according to The Detroit News. On the other hand, the industry's loan issue has been brewing for much longer than the credit crisis. An energy law enacted last December first authorized the $25 billion industry loan package but did not fund it. That same law also mandated the higher fuel economy CAFE standards in the 2011-20 model years. In response, the new loan package has been designed with certain restrictions forcing carmakers to use the money to meet the tougher standards. One of the requirements is that the money can be spent only on retooling factories that leads to vehicles that are 25% more fuel-efficient than current models. While previously the government has been reluctant to participate in bailout schemes for commercial enterprises, their current attitude recognizes the difficulties that carmakers face in attempting to adhere to new fuel efficiency standards and the cost involved in implementing this across an entire product range. Hope for a new economic bailout package has already risen despite the original $700 billion plan to save Wall Street having been dashed by the White House yesterday. On Monday, when the original bailout plan was refused, General Motors and Ford stocks plummeted by as much as 13.3%, hitting a 54-year low for GM, but already their share values have rebounded on the news of the reworked deal nearing approval. In fact, Ford's share value has risen 24.7%, more than regaining what was lost on Monday, and GM has similarly climbed back out of its hole. The next several months will be critical to re-establishing the stability of the U.S. economy, both for the automotive industry and consumer credit agencies alike.
The funds would be distributed by a single overseer, dubbed 'car czar' by politicos

The funds would be distributed by a single overseer, dubbed 'car czar' by politicos

Enlarge Photo

Call it a bailout or call it an aid package, the car industry is only concerned with securing the funds it believes it needs to remain competitive as CAFE standards tighten. The federal government has taken heed of calls from both unions and the carmakers, with both houses of Congress having recently approved the loan package, and now President Bush has taken the final step and signed the bill into law today as part of an interim budget exceeding $630 billion.

The majority of the budget bill will go to the Pentagon and other national security-related agencies, but in amongst the defense spending lies the automotive industry's long-sought help.

Now that Bush has signed the bill, the Department of Energy will write rules to manage the loan program. The first loans are expected to be available by the middle of next year. Unfortunately the loan package that had previously been seen as a sure boon to the industry may yet prove to be too little help. The crippled financial and credit sector of the U.S. economy is taking down institutions left and right, and absent a bailout scheme for the major lenders, there will be no credit available for consumers to buy the much-improved cars the industry will use the $25 billion to build.

It was the mortgage-induced credit crunch that necessitated the industry's approach to the federal government for the loan package in the first place - the then-weak but still-standing credit industry was refusing to lend money to the high-risk automotive sector. Now that the carmakers have circumvented that problem by going straight to Congress, the bottom has fallen out from under the consumer side of the market as well.

The problem was summed up simply by Rep. Barney Frank, a Democrat from Massachussetts, and chairman of the House Financial Services Committee, when he said, "The greatest threat the auto industry faces right now is this credit crisis, because you buy cars on credit," according to The Detroit News.

On the other hand, the industry's loan issue has been brewing for much longer than the credit crisis. An energy law enacted last December first authorized the $25 billion industry loan package but did not fund it. That same law also mandated the higher fuel economy CAFE standards in the 2011-20 model years. In response, the new loan package has been designed with certain restrictions forcing carmakers to use the money to meet the tougher standards. One of the requirements is that the money can be spent only on retooling factories that leads to vehicles that are 25% more fuel-efficient than current models.

While previously the government has been reluctant to participate in bailout schemes for commercial enterprises, their current attitude recognizes the difficulties that carmakers face in attempting to adhere to new fuel efficiency standards and the cost involved in implementing this across an entire product range.

Hope for a new economic bailout package has already risen despite the original $700 billion plan to save Wall Street having been dashed by the White House yesterday. On Monday, when the original bailout plan was refused, General Motors and Ford stocks plummeted by as much as 13.3%, hitting a 54-year low for GM, but already their share values have rebounded on the news of the reworked deal nearing approval. In fact, Ford's share value has risen 24.7%, more than regaining what was lost on Monday, and GM has similarly climbed back out of its hole.

The next several months will be critical to re-establishing the stability of the U.S. economy, both for the automotive industry and consumer credit agencies alike.

Tags: loans, bailout, Industry

Posted in: News


Comments (18 total)

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  1. By justin #1, Posted: 8/22/2008

    I support this package greatly, with all these prices rising i believe that to aid car makers to create and generate more fuel efficient cars to gas free cars is a must. If i was the president i would sign the bill immediatly. Too bad im not.

  2. By Renton #2, Posted: 8/22/2008

    Justin, these idiots in charge of the US Big Three served us shiat for the last 30 years, never once attempted to build a decent machine until maybe 2 years ago.

    Both Ford and GM built superior cars in Europe and left us with crapola. They never once tried to build an efficient car to save their arses here in the States.

    Now they are behind the 8-ball big time, and suffering through no one's fault but their own. We asked them to build decent stuff and voted with our wallets. They lost and never learned.

    They are huge money wasting giants and really have never proven worthy of deserving such a bailout.

    I know we have to save the industry, but don't be so quick to write a check. They should have done all of this engineering on their own dime 10 years ago.

    Maybe I should be President.

  3. By Hindy #3, Posted: 8/23/2008

    You can blame the UAW for all of that!!!!

  4. By HECTOR #4, Posted: 8/23/2008

    $50B? Damn man I only want to borrow $50M. I'm cheaper so I should come first...

  5. By Craig S #5, Posted: 8/23/2008

    I totally agree with Renton. They produced crap for decades while the imports constantly improved (Honda was also crap when it first landed in North America) and expected people to buy the sub par products they were producing. Now they're crying for help.

    I say let them help themselves and use their own resources. If there is considerable improvements in products and production then provide low interest loans but not for 50 Billlion. Let them show us they're also invested in improvement before we simply sign over checks and throw bad money after worse!

  6. By NoNameDenton #6, Posted: 8/23/2008

    Why should tax payer money prop up companies that can not make a profit on their own.

  7. By chris #7, Posted: 8/24/2008

    ok.. again.. renton..... ford has their euro offerings here in north america for years. the escort was always a global car, the focus was as well... it 2005 when euro got the second gen, it was the first time that ford wasn't selling a compact car globally. the contour was also sold here... hell we even got the vetted sierra cosworth in the form of the merkur xr4.... what the hell else do you want? they sold the fiesta here too.. for several years... i'm sure the same can be said of GM and chrysler.. i know for a fact that chrysler vans are sold in europe..

    but no one buys their vehicles... no one associates them with quality. no one here knows that the focus is the car of choice for a lot of euros to go blasting through finnish gravel roads at 200kmph... no one knows that. they all thinkm that if you want a good car, it's gotta be japanese or german.. if you want a cheap car, its gotta be american. people see a 20 year old escort on the road and think "wow... thats one of the few that made it".. meanwhile a 20 year old carolla gets "i should have bought a japanese car in 1988"....

    it's all horse shit. you never bought the "american euro quality" offerings when they had them here... they figured they might as well appeal to the market's desire for cheap cars with very american styling... and just use that as a permanent rolling campaign for their truck and SUV sales.. where people were actualy willing to pay a huge premium for cheap vehicles...

    or maybe you can look to the fact that brits pay in POUNDS what americans pay in DOLLARS for their cars. maybe americans should realize that they've built a walmart society and should learn to DEAL with it. no one wants to "get had" and everyone wants the "american dream" with the biggest car and the biggest house on the block. the AMERICAN companies have been trying to satisfy market demand.

    there's been such a rapid shift in consumer demand that the only thing these companies can do is wait for the market analists to say "yeah now's the time... everyones pissed" and simply retool their factories here to build the products they make abroad. and it isnt like their offerings are lightyears ahead of ours. yeah you can get a mondeo that gets 35mpg... but its got a fucking 1.6L 100 hp 4banger in it....... a car that most americans would typically say needs at LEAST a v6.. maybe even a V8.

    I think it's pretty narrow-minded to simply chalk this up to american companies offering shit products for ever and that they don't deserve any aid. it's because of YOU the consumer that they've grown acustomed to making their money in a certain segment. I've said it for years now but if we were in bizarro world where up is down and black is white.. and gas consumption is good,... everyone would be buying trucks and the big 3 would have slaughtered the imports cause no one makes a truck like the big three.

    we thought toyota was going to deliver the goods with the latest tundra but we know full well that any of the big3 trucks are better than that POS...

    so just keep a solid frame of reference when you think about what the hell is going on here.

  8. By chris #8, Posted: 8/24/2008

    that whole thing wasn't aimed just at renton.. its all of you who've posted and for anyone who read the posts and agreed but didnt post themselves..

  9. By bgd73 #9, Posted: 8/24/2008

    renton is indeed telling a good point. Now that we have all suffered, we are suffering again: do not ever forget, it is we the people that are the government. Money pit twice isn't nice. I wished I was crazier once upon a dream..I would be a killer....the whole think tank within thier retarded organizations. Cars would not only last longer, they wpuld have real engines....if it means losing billions in another direction called truth of longevity. How bout that 3 main boxer engine?

  10. By Tony #10, Posted: 8/25/2008

    (From outside Nth America) Americans have excellent engineers, and when they and the management are inspired and allowed to do their jobs right, watch out world -- witness any Bose and the Apple iPod/iMac products. Competitors abound, but somehow, can't weave the same magic. Bose/Apple/Macs cost more than their rivals, but people buy them anyhow, or aspire for them if they couldn't afford it. Trouble is, when bean counters are pressed into shifting priorities to simply give the shareholders a continually increasing return year after year, the company just can't do what it does best.

    Capitalism rewards hard work and sound decision-making, but it also punishes poor strategy and planning. I don't think the consumers drive the manufacturers -- they simply buy what is dangled infront of them. Does Bose do a $200 Lifestyle 5 to keep its market share ahead of, say, Philips? When times were good, the Big 3 sold SUVs and trucks at top margin (they aren't even THAT technologically advanced), paid shareholders handsome dividends...and left the Cavalier, LTD, and Neon to languish. Had they actually even advanced their SUVs, and let some technology trickle down to the cars, it would've still been an improvement at a lower cost.

    Should they be bailed out? Hmmmm...$50-B is a pretty hefty sum. Shareholders should learn that they are guaranteed money if their company's products are superb and consequently sell well, not the other way around. You don't cut corners and build a mediocre product to ensure a big dividend.

  11. By Andrew #11, Posted: 9/4/2008

    I am so sick of this bail out crap. Especially from republicans. What happened to 'let the market decide' and 'this is capitalism'. The market decided that American car companies make terrible vehicles that are gas guzzlers that nobody wants. So we give them $50B, then what? They develop a super SUV that gets 5mpg. If the United States government wants to invest $50B into an automotive technology that may succeed in this country I suggest they visit www.afstrinity.com. I for one would rather have them spend their money on that instead of on 'old' companies that blew all their 'old' money on 'old' technology that nobody wants to buy except 'old I'll by anything made in america' Americans. I don't care where its made as long as I'm getting the best product for my ever so worthless dollar.

  12. By saabfan #12, Posted: 9/8/2008

    I thought GW had stated no bail out not too long ago. What happened? And Obama support this hoping to win vote from MI, well so much for talking about change I guess it's politic as usual.

  13. ma_frogdip avatar by frogdip #13, Posted: 9/28/2008

    I am so sick of this bail out too. As a tax payer, the only money Big 3 will ever see from me is part of the 25 billions loan from my tax contribution. I will not buy any car from the Big 3.

  14. ma_tache avatar by tache #14, Posted: 9/28/2008

    for chris

    ford built an car named ford escort on both sides of the atlantic, but it was NOT the same car , as is the case now with ford fusion

  15. ma_HECTOR avatar by HECTOR #15, Posted: 9/29/2008

    @Andrew: The Congress approved this bailout for Detroit. The COngress is controlled by Democrats, not Republicans.

    @Chris: So your long diatribe basically says *the Big 3 built great products but it was us, the buying public, who misunderstood them, gave them a bad shake and didn't buy their products*. Is that it? How's the koolaid my friend?

    @Tony: the Puff Daddy edition of the Navigator made $35K PROFIT for Ford. And now they're crying like little girls because they're going down. Yet they keep building crap like the Flex and bring back the name Taurus and put it on an increasingly ugly car.

    NOT A SINGLE CENT FROM THIS TAXPAYER TO THE BIG 3 !!!

  16. ma_messagerelay avatar by messagerelay #16, Posted: 10/6/2008

    This auto manufacturer bailout loan crap makes me not want to vote. YES, it's a bailout and a risk. The risk is, they will probably use the money unwisely just like before and not make a profit. Please tell me, how do pay back a loan without profit? And who made the calculated risk to do this? The big three auto mfrs should be allowed to fold. I highly believe the UNION is the main cause of their failure. Think about it. Why should a person with no college education, some don’t even have High Scool ed, make $29/hr for mounting hardware on hardware? Tires, seats etc… I have seen people “Stage” parts like screws and washers and gaskets and push buttons that get paid over $24/hr. Give me a break. No wonder they are losing money. They have to support the morons in their work force. A high scool student can do this for federal min wage!
    Most everything is automated and the unhealthy stuff is done by robots. That’s ridiculous. If one were to vistt one of their plants and audit this you will see it’s true. I have been in manufacturing for 10 years. Positions get a pay increas because of tenure? WTF is that. After 5 years your still an idiot manual robot doing the same thing you got paid for when it was minimum wage! The big three should fold and the American people should not have to suffer through their reign of OPEC Support terror.
    DROP THE UNION! Or beteer yet, shut down the plant and reopen WITHOUT THE UNION! Sure, promote "Buy American". I'll spend my money on some good ol Amercian fun like go see a Baseball game and scarff down 8 hotdogs and a pitcher of beer before I spend a boatload of money on an american car just to help support the afformentioned idiots employed there. Don't get me wrong, not all are itiots, just the floor rats. If it weren't for the UAW, US auto prices would be more competitive and affordable to Americans.
    Let’s take a look at this PHEV incentive that was passed also. To take advantage of this incentive, the vehicle you purchase must have soo much battery in it, can’t remember the specs but it was 3x more than any current foreign hybrid uses. Ironically if you look at any vehicles that can qualify, only the Chevy Volt and other US hybrid wannabe vehicles can qualify. Why? Because they are soo inefficient they require that much battery to run. So basically these US autos can not sell themselves and the big 3 need the govt to try and make the deal sweeter. For this reason I will never purchase a US big 3 vehicle again. The American people CAN survive even if the big 3 auto are gone. Need a car? There’s others to choose from? Lose your job because the plant failed to foresee the coming inevitable world change and they blindly charged on building Bradley Tank SUV’s? No problem, other auto manufacturers exist here in the US and when competition is gone from the big 3, guess what, manufacturing increases elsewhere in the US. Incentives for this PHEV bill should go to the vehicles that ARE PHEV. That should be the criterea. Then the consumers can decide WHAT PHEV they want to buy. So, guess what, they will most likely not buy a Chevy Volt and I highly recommend against the volt. This vehicle as well as any other attempts for the big 3 to sell as a hybrid / PHEV is just like their predecessors. They were hogs on gas back then, and in this generation they are hogs on batteries! Nothing has changed and they learned nothing. Tell me again why we are giving these huge loans to the same people that enticed people and sold Americans these poor excuses for a vehicle? I hope they all go under. This will open the doors to the small entrepreneurs like the “AC Propulsion”, “Phoenix Motors and “Hybrid Technologies” or “Black Bay Technologies”. Don't get me wrong, the Volt is an outstanding concept. I just don't agree with their business practices therefore they will never get my bussiness again or support. Here's proof Ford can produce a high mileage car: http://www.carpages.co.uk/guide/ford/ford-fiesta-studio-1.25-3dr.asp AND HERE:http://www.businessweek.com/magazine/content/08_37/b4099060491065.htm?chan=autos_autos+--+lifestyle+subindex+page_top+stories, funny they don't offer it here in the US, we don't deserve it?
    Basically IF the big 3 took what “Hybrid Technologies” is doing and refined the process, expand their facility, buy them out and ensure product reliability to “Their” standard then I believe the big 3 can make a come back. Think about it. This little comapny, Hybrid Technologies, takes already built ICE vehicles and convert them to 100% Electric in about 4 days. You get a range of 100+ miles. Good for commute and for soccer practices and runs to the grocery store, run to fast food for the 3 kids and get a beer. That is a perfect idea. So there, I just retooled the big three in less than an hour, my bill is $50Billion please.
    Of course this will not happen because Detroit has this “It wasn’t my idea so I wont bother with it” persona. Sure they’ll probably get the loan. How’s it feel to be left out in the cold for those Americans who lost their homes to bad loans? Govt will bail big auto but leave Americans to fend for themselves and at the same time pay for this friggin mess. Yes, it is true that “We weren’t pushing these larger vehicles, we were just building what our customers wanted,” Mulally said….” (Quote from: http://afp.google.com/article/ALeqM5h4EahO3VBl2HqNDP58DrifgZ_RlQ) but you continued and did nothing to “Adapt” to the market, Just like the dinosaurs, and guess what, the Asteroid of OPEC hit and you cant “Adapt”! Hey Detroit, “Retool THIS!”, bastards.

  17. ma_John avatar by John #17, Posted: 11/7/2008

    Lets start with the lack of profit. 1st over priced workers causing overpriced vehicles that most people cant afford right know. 2nd if your not smart enough to pick up the fact that people can't afford your vehicles and don't lower the price to get your sales back up your problem. 3rd now you have alienated your purchasing public by taking money out of our pocket by way of hand out from the government and still people won't be able to pay the over the top pricing on new vehicles. (Green or other) Finally I will support the local small business dealer and purchase used vehicles before i ever go back into the door of a big 3 dealer they can die a slow painful death for all i care and the union can go with them $20 + dollar an hour for what over priced vehicles Ha welcome to the real world ladies and gentlemen get ready for the same fate the rest of us deal with regularly.

  18. ma_mburleigh8 avatar by mburleigh8 #18, Posted: 11/10/2008

    Wow, I really hope this makes the us auto makers wake up and build some good cars.

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