Congress Approves $25 Billion Loan to Automakers

In the next few years, consumers could see the fruits of $25 billion in government loans for the auto industry through a broader lineup of gas-electric hybrid vehicles, new plug-in electric cars and an expansion of fuel-efficient engines.

The loans, approved by the House as part of a larger spending bill Wednesday, are intended to help the industry refurbish decades-old plants and develop advanced batteries and gas-electric hybrids. The loans are a major win for General Motors, Ford and Chrysler, who lobbied for the funding as they dealt with a sluggish economy and weak sales.

"We all know that there is real growth for our economy in this sector of jobs — green jobs, alternative fuel jobs — and I think we all feel the stresses on our domestic auto producers," said Sen. Claire McCaskill, D-Mo. The Senate was considering the loans later this week.

The loans were authorized in last year's energy bill but not funded. The loans were designed to help automakers meet costly new fuel-efficiency standards of at least 35 miles per gallon by 2020, a 40 percent increase. Auto suppliers are also eligible for the loans.

Loans will be issued from the government at discounted rates and administered by the Energy Department, which is currently writing regulations for the program. The spending plan, which includes $7.5 billion in case one of the companies defaults, would enable the department to speed up the rulemaking process. Companies would apply to the Energy Department for a loan, so it was unclear how the funding would be divided.

Ron Gettelfinger, president of the United Auto Workers, said the loans ensured that the "products will be built and the plants will be retooled right here in the United States." He said recent product announcements offered a sign of how the loans might be used.

GM recently unveiled a production version of the Chevrolet Volt, which is expected to propel the car up to 40 miles on a single charge and be in showrooms by late 2010. GM also plans to build four-cylinder engines in Flint, Mich., for the Chevrolet Cruze, a new small car.

Ford is producing more hybrid vehicles and announced plans in July to bring over six small, fuel-efficient cars it makes in Europe and sell them in North America. Chrysler showed three electric-powered prototypes on Tuesday and plans to sell one in the U.S. in 2010.

The loans were helped by the importance of Michigan, Ohio and Missouri, key auto manufacturing states, in the presidential campaign. Both Barack Obama and John McCain had expressed support for the loans.

Sen. Debbie Stabenow, D-Mich., said the loans were "critical to saving jobs" in an industry that has already shed jobs and struggled with weak sales, credit problems and a rapid shift to fuel-efficient cars as gasoline prices topped $4 a gallon.

Auto executives told House Speaker Nancy Pelosi last week that the economic conditions were the worst they had seen in 30 years and warned that tens of thousands of employees could be affected.

"We were going to be in a real box later on this year," said Rep. Fred Upton, R-Mich.

The companies 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 in loans. The auto manufacturers have poor bond ratings and would only qualify for double-digit interest rates.

Industry officials floated a three-year, $50 billion loan proposal earlier in the month before settling on $25 billion. "As we go forward, we will be starting on the second $25 billion," said Rep. John Dingell, D-Mich.