Bush Approves Loans for Auto Makers
MATTHEW DOLAN / Wall Street Journal 30sep2008
President Bush on Tuesday signed into law a low-interest loan package to aid U.S. auto makers, but those struggling companies will still have to wait months to find out how and when they can tap the $25 billion designated to smooth their transition to building more fuel-efficient vehicles.
The loan package was approved last year as a way to help auto makers and their suppliers meet fuel-economy standards set by the federal government. But the funding for the package wasn't passed by Congress until this year. One estimate put the total cost to auto makers at $100 billion to meet stricter efficiency standards that require vehicles to reach 35 miles per gallon by 2020.
General Motors Corp., Ford Motor Co. and Chrysler LLC have argued it was essential to get the loan help as soon as possible to rejigger plants to build smaller cars and infuse money into programs for gas-electric hybrids and other vehicles relying on alternative fuels. The recent credit crunch, along with double-digit declines in U.S. auto sales, have only put additional pressure on the auto makers to gain quick access government-backed loans, according to industry analysts.
"The auto loans can't come soon enough," said Kip Penniman, automotive analyst at KDP investment Advisors. Calling the loans a "lifeline" for GM in particular, Mr. Penniman said each of the auto makers will likely need to access some of that funding next year. Detroit's Big Three, once bullish on a turnaround in the auto sector in 2009, now expect to be another challenging year for auto sales in the U.S.
Under the approved legislation, the Energy Department now has 60 days to write regulations, setting the parameters that will govern who qualifies for the loans and when. Congressional leaders, especially from Michigan, have called on the department to adhere to that timeline in the hopes that the companies would have access to the loans by the middle of 2009.
But an Energy Department spokeswoman said Tuesday that Congress failed to lift several restrictions on that process, making it more difficult to meet the timeline. She earlier estimated that it could take between six and 18 months to complete.
"Congress set a timed deadline of 60 days for the regulations to be issued not for the loans to be made," department spokeswoman Healy E. Baumgardner said in a statement Tuesday. "Specific statutory requirements outline administrative and legal procedures which will require a longer timeframe for full implementation of the program….Congress had the opportunity waive one or more of these requirements enabling for a faster process, but failed to do so."
source: 30sep2008
Analysts Say Auto Industry Loans
Must Come Quickly
TOM KRISHER & KEN THOMAS / AP / Chicago Sun-Times 30sep2008
DETROIT If credit remains locked up and auto sales continue to slump, the federal government’s $25 billion loan package for the auto industry could be a huge help in keeping Detroit’s downtrodden automakers afloat, according to lawmakers and industry analysts.
Chrysler LLC, Ford Motor Co. and General Motors Corp., which likely will get the bulk of the loans, are losing billions and facing huge debts already as they try to remake their lineups from predominantly trucks and sport utility vehicles to smaller, more fuel efficient vehicles.
The loan legislation, approved by Congress on Saturday, was passed to help the battered industry retool factories and develop technology to meet new government fuel-efficiency standards of at least 35 miles per gallon by 2020, a 40 percent increase.
With the bulk of the money apparently going to the Detroit Three, it could come in the nick of time for cash-strapped automakers who might otherwise have trouble borrowing more to cover their bills.
Government red tape, namely regulations written by the Energy Department, could delay the loans by up to 18 months. Congress specified that the agency produce preliminary rules within 60 days, and lawmakers who support the industry hope the funding arrives by spring.
“The longer it takes the less valuable and useful it is,” said Sen. Carl Levin, D-Mich. “It may vary from company to company depending on their individual circumstances.”
Levin says it’s important to get the money to automakers within six months, because that’s the time they’re retooling factories for a big rollout of fuel efficient 2010 models. General Motors and Ford each have announced new small cars for 2010, and GM and Chrysler have committed to rechargeable electric cars in the same year.
No one knows for sure how long it will take to get the money, but analysts and politicians are figuring on mid- to late-2009. That might be just in time for the Detroit Three if sales continue to drop, credit remains too tight for them to further tap conventional markets and they start to run low on cash.
“I think the timing is fortuitous,” said David Healy, an analyst with Burnham Securities who says Ford, and particularly GM, might have trouble paying bills late next year without the loans, if conditions don’t improve.
Auto executives have said the government loans will speed up bringing new technology to market, but they have pledged to make more fuel-efficient models regardless of whether the loans arrive. The loans, however, could help them avoid making the choice between pursuing multiple fuel-efficiency technologies or further cuts, including more job losses, Chrysler CEO Bob Nardelli said last week.
Money is supposed to be available to the entire industry, but a clause in the legislation gives priority to “those facilities that are oldest or have been in existence for at least 20 years.”
Chrysler, Ford and GM, all of which have factories far older than that, look like they have the inside track to get the bulk of the loans.
Rep. Joe Knollenberg, R-Mich., said he expected the Detroit automakers will “get a large share” of the funding, but it was not clear how the money will be divided among car companies and parts suppliers.
It’s unlikely that Japanese automakers, the Detroit Three’s main competitors, will seek any money, said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
Toyota Motor Corp., Honda Motor Co., Nissan Motor Co. and other foreign-based automakers did not lobby for the loans and it was not clear if they’ll seek funding.
The prospect of giving federal loans to foreign-owned companies raises political concerns, even though several Japanese automakers have factories that would qualify, Cole said.
“There’s no way, for example, that a Toyota or a Honda is going to put in for this kind of money,” Cole said. “I think politically it wouldn’t be a good thing, and they don’t need it.”
The Detroit automakers, however, are in dire need.
Ford already has $25 billion in long-term debt, while GM has about $32 billion. Both are losing billions with no short-term prospect for profits. Chrysler, now a private company that does not have to report its debts, has seen the steepest U.S. sales drop of any automaker, down 24 percent through August.
In addition to covering losses and paying restructuring costs, all three are burning cash to retool plants, develop new gas engines and engineer new electric cars.
“You’re swimming a river that’s getting deeper and faster and wider,” said Cole, who believes the market will eventually recover and automakers will again make money. “The pot of gold on the other side is getting bigger.”
All the headwinds mean the automakers can use government loans as quickly as possible, said Fitch analyst Mark Oline.
“It would be important for Ford and GM and Chrysler to get this money in the second half of 2009,” Oline said, adding that the government loans would help keep the confidence of parts suppliers and consumers.
Automakers hope to receive the loans at government interest rates of about 5 percent, which would save them about $100 million a year for every $1 billion they receive. The auto manufacturers have poor bond ratings and would otherwise only qualify for double-digit interest rates.
The loans were authorized in last year’s energy bill but not funded then.
Companies would need to build vehicles that are at least 25 percent more efficient than “vehicles with similar attributes” to qualify for the funding. Automakers have not said which projects they would seek funding for because the regulations have not yet been written.
As automakers wait for the loans, they will continue trying to cut expenses, take advantage of a new cost-saving contract with the United Auto Workers and sell assets in an effort to raise more money and ride out the downturn.
“They’ll continue to pull the levers that they need to pull,” said Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co. “They’re not in a unique circumstance. Unfortunately every industry that’s economically sensitive is facing these severe headwinds.”
source: 30sep2008
Bush Approves $25 Billion
Loan Package for Auto Makers
Reuters 30sep2008
President George W. Bush on Tuesday signed into law a mammoth spending bill to keep the government running until early March 2009 that includes a $25 billion loan package for troubled automakers.
The action came after the Senate over the weekend gave final congressional approval to the more than $630 billion spending bill that was needed to finance defense, education, farm, health, foreign aid and other government programs after the current fiscal year expired on September 30.
The spending legislation allows a ban on offshore drilling to expire on September 30. Democrats had hoped to extend the ban, but did not have the votes to overcome strong opposition from Republicans.
Bush, in a statement announcing that he had signed the legislation, said the measures to lift the ban on offshore drilling "will allow us to reduce our dependence on foreign oil."
The bill sets aside $7.5 billion in taxpayer funds needed to guarantee $25 billion in low-interest loans to help General Motors Corp, Ford Motor Co and Chrysler LLC produce more fuel-efficient cars and trucks.
U.S. automakers have said the taxpayer-backed loan package
would give them access to capital at a time when credit markets are shut and they are being driven to invest in new technologies to meet tough new federal fuel economy standards.
The $25 billion loan package, the biggest federal subsidy for the auto industry since the 1980 bailout of Chrysler, cleared Congress last weekend when the focus was on the debate over the $700 billion financial rescue package.
GM, Ford and Chrylser had said they could manage without the federal loans but also suggested that without the federal subsidy thousands more industry jobs could be at risk.
Both presidential candidates, Democrat Barack Obama and Republican John McCain, backed the auto loan package, which had strong support in battleground election states like Michigan and Ohio.
U.S. auto sales have been slumping for three consecutive years, forcing Detroit automakers to slash jobs and cap new investment. Through August, U.S. sales were down 11 percent and on track to hit the lowest level in 15 years.
The loan package was authorized but not funded in a 2007 energy law that requires automakers to improve the fuel efficiency of their vehicles by 40 percent by 2020.
Major automakers have said that will require up to $100 billion in combined new investment to retool factories and invest in new technology, including next-generation battery-packs for electric vehicles.
Industry executives, including GM Chief Executive Rick Wagoner and Chrysler Chief Executive Bob Nardelli, said they would press for liberal federal guidelines once the law was sent to regulators in order to use the funds to offset the cost of a wide range of investment.
Japanese automakers Toyota Motor Corp and Honda Motor Co could be eligible for the low-cost federal funding but have said they have no intention of applying for the loans.
Congress passed the massive spending bill before the new fiscal year began October 1 because lawmakers failed to approve any of the 12 spending bills needed every year to fund government operations.
Reporting by Tabassum Zakaria and Kevin Krolicki; editing by Carol Bishopric
source: 30sep2008
Statement on Auto Industry Bailouts
RALPH NADER / Press Release 29sep2008
The Big Three are in big trouble, and they have themselves to thank for it.
Ford and General Motors have reported substantial losses in the second quarter amounting to $15.5 billion, and $8.7 billion, respectively, while Chrysler, which was bought off last year by a private equity firm, Cerberus, refuses to reveal its financial standing.
It is no wonder why their lobbyists were spotted schmoozing with members of Congress at the Democratic and Republican National Conventions, liquoring up in their plush suites and private parties while they made their case for direct government loans which, if approved, would likely add to our federal deficit.
Last December, Congress approved a $25 billion loan to automakers and their suppliers under the Energy Independence and Security Act, though it has yet to be funded. That bill includes a modest requirement for automakers to increase their average vehicle fuel efficiency to 35 mpg—a benchmark we should have set decades ago, and would allow the companies to have their way with virtually no oversight or accountability.
This corporate Congress cannot be expected to issue serious demands, set tough conditions, or impose strict rules on the auto companies to ensure their workers receive fair pay and benefits, and prevent their fat-cat executives from making off big while leaving their companies in shambles.
Such blatant giveaways have become the norm in Washington since the corporate stranglehold of Congress and the White House have smothered the forces seeking worker, consumer and environmental justice.
But this recent example should not discount our long history of dealing with corporate failures in more public and effective ways than just ponying up billions on demand at any big corporation’s whim.
In 1979 when Chrysler was on the verge of bankruptcy, the automaker came crying to Congress for a bailout, which they eventually got, but Congress wasn’t as much of a pushover.
Back then, at least the corporate chieftains were grilled by Congress and had to agree to give something back for Uncle Sam bailing them out—good jobs and pensions for their workers, and more efficient cars to reduce reliance on foreign oil and reduce prices at the pump.
Now the CEOs don’t even have to leave Detroit and they get much more money for almost no return commitment to America, while they outsource jobs and pollute our environment.
During discussion on a proposed loan bill to bailout Chrysler in October 1979, Senator William Proxmire (D-WI) who chaired the Senate Banking Committee issued his opposition to Chrysler’s request and noted: “We let 7,000 companies fail last year—we didn’t bail them out. Now we are being told that if a company is big enough… we can’t let it go under.” He went on to call the proposed deal “a terrible precedent.”
Raising the government’s demand for performance standards, President Carter’s Treasury Secretary William Miller told Chrysler officials, “it’s going to be so awful, you’ll wish you never brought the whole thing up.”
Today, we rarely hear such candid opposition to corporate orders shouted at their congressional servants who lack the fortitude to put serious restraints and conditions on mismanaged, reckless big business and their overpaid CEOs seeking tax-payer salvation.
As a part of the Chrysler deal in the late Seventies, the government took out preferred stock warrants and after the company turned itself around and repaid its loan seven years early, the government ended up cashing out, receiving $400 million in the appreciated stock.
And Congress made clear to Chrysler that it had specific conditions the company had to meet before receiving the loan guarantee. It forced the company to contribute $162,500,000 into an employee stock ownership trust fund geared to benefit at least 90 percent of its employees, design more fuel efficient autos to help reduce consumption of foreign oil, and prohibit wages and benefits from falling below a level set three months before the legislation was passed.
Today, congressional actions to grant multi-billion dollar loans to the corporations lack the reciprocity some in Congress demanded 30 years ago. Before Congress irresponsibly dips into the public piggy bank, this time it would be wise to look back at how the government once dealt with Chrysler’s dilemma, require clear benchmarks to deliver on the next generation of green collar jobs, improved fuel efficiency and gain a substantial return on its investment, not just in monetary value, but in the long-term viability of the domestic motor vehicle fleet.
Congress needs to call on the auto industry to innovate their way out of this morass into which they’ve engineered themselves into. A sensible strategy would be to issue stock warrants to the government, like in the 70s, which would create an incentive for Congress to keep pressure on the auto industry to improve. Public Congressional hearings are a must.
Will Congress echo its actions of 30 years ago when it scrutinized corporate demands, grilled company executives, and imposed conditions to ensure fair compensation and safety for workers? Or will Congress continue down the road of corporate servitude, refusing to stand up for workers, consumers, taxpayers and the environment in its session-ending stampede and flight away from auto industry accountabilities?
September 29, 2008
www.votenader.org
FOR IMMEDIATE RELEASE
Contact: Marc Abizeid, 202-360-3273, marcabizeid@votenader.org
NADER CAUTIONS UNSAFE AT ANY SPEED CONGRESS TO PUT BREAKS ON STEALTH BAILOUTS
This weekend, drowned out by the $700 billion Wall Street bailout negotiations, the Senate approved a bloated loan package that released $25 billion in below-market rate loans to the auto industry. The Congressional Budget Office estimates that it will cost taxpayers roughly $7 billion to finance the loans to bailout failing companies with no demands for oversight and accountability. Below is a statement by Ralph Nader, originally published September 17, 2008 on his blog, recounting the tale of Chrysler’s 1979 $1.5 billion loan guarantee when the government took steps to ensure it would benefit from the agreement, prior to the transformation of our Congressional leaders into Congressional corporate servants.
source: 30sep2008
The Big 3 Bailout You Didn't Know About
Automakers quietly seek billions during U.S. financial crisis
JEROME CORSI / WorldNetDaily 28sep2008
If you read mainstream media reports, you might conclude the government's bailouts of Freddie, Fannie and AIG are the only ones making headway in Washington, D.C.
You would be wrong.
In what is certain to be the most extensive round of government intervention in U.S. history, the auto industry has used the cover of the financial services meltdown to make sure its government bailout goes through without a hitch.
Clearly, among the few in the country who can find a silver lining while the nation's attention has been consumed by the $700 billion bailout, are the auto executives of the Big 3 – General Motors, Ford and Chrysler. They have managed, under the radar, to quietly move ahead their own planned billion dollar bailout.
As Red Alert reported at the end of August, GM, Ford and Chrysler are seeking up to $50 billion in low-interest government-backed loans, double the $25 billion approved last year as part of an energy bill.
The U.S. auto industry, wracked by unexpectedly high gas prices this year, has found itself once again producing the wrong models at the wrong time.
Repeating a historically embarrassing inability to predict consumer preferences, the U.S. Big 3 are flush with an inventory of SUVs and large pickup trucks at a time when consumers are begging for smaller European-style minivans and more fuel-efficient vehicles, including hybrids.
Last week, U.S. News & World Report suggested the $25 billion loan-guarantee bailout for the Big 3 automakers may be passed by Congress and signed by President Bush as early as this weekend. Certainly, it will be done without any fanfare, especially if the financial services bailout is finalized and ready for the president's signature at about the same time.
Reuters confirmed the auto deal cleared a major hurdle last Wed., Sept. 24, when the House passed the $25 billion loan guarantee measure as part of a "larger, must-pass spending bill."
Reuters also reported the Senate is expected to follow through swiftly and pass the legislative package so President Bush can sign it into law by Oct. 1, this Wednesday.
Ironically, George W. Bush, who in 2000 was considered a conservative president, will have a legacy of having run up some of the largest federal budget deficits in history, while also having undermined the private economy. It will not have been by government regulations, but by outright government takeovers and bailouts many consider takeovers.
For more on how your tax dollars will bail out Big 3 automakers, read Jerome Corsi's Red Alert, the premium, online intelligence news source by the WND staff writer, columnist and author of the New York Times No. 1 best-seller, "The Obama Nation."
source: 30sep2008
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