Correction to This Article
This article on the auto industry loan program contained a quote incorrectly stating that no Japanese auto plant in the United States is 20 years old. Honda, Nissan, Toyota and Mazda all built U.S. assembly lines in this country more than 20 years ago.

Lifeline for Automakers Dangles Just Out of Reach

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By Kendra Marr and Lori Montgomery
Washington Post Staff Writers
Wednesday, October 22, 2008

A $25 billion loan program rushed through Congress to revive the nation's ailing domestic auto industry may not deliver any money to Detroit for more than a year, federal officials said, prompting concern that the cash may come too late to prop up one of the country's most important manufacturing sectors.

In recent days, auto industry representatives and lawmakers from Michigan, Kentucky and other states where auto plants employ tens of thousands of workers have begun clamoring to pry the funds loose, prodding the Bush administration and questioning the reasons for the delay. Federal officials have said it would take months to finalize the rules for distributing funds.

The loan program has emerged as a lifeline as the global financial crisis has made it more difficult for people to get loans, sending car sales plummeting to a 15-year low. In response, General Motors and Chrysler have discussed merging or forming an alliance in hopes of arresting their decline. On Monday, billionaire investor Kirk Kerkorian began selling off his stake in Ford at a large loss, adding to worries about the industry's prospects.

Both presidential candidates have urged the Bush administration to speed release of the loans. Sen. Barack Obama (Ill.), the Democratic candidate, said at a rally last week in Ohio that if he were president, "I would call in the secretary of Energy and say 'get this thing moving' because these companies need help now."

The loan package, the largest government subsidy for the auto industry since the 1979 Chrysler bailout, is intended to aid production of more fuel-efficient cars. During the gas crisis of the 1970s, Asian and European automakers capitalized on America's growing appetite for smaller cars. Since then, the Big Three have slipped and continue to lose market share to Toyota, Honda and other foreign brands.

Retooling has become more difficult as the financial crisis has frozen credit markets. Earlier this month, J.D. Power and Associates said the global market for autos may experience an "outright collapse" in 2009.

"It's critical to have a direct loan program, and it's equally important to infuse that money into the industry as quickly as possible," GM spokesman Greg Martin said.

To qualify for the loans, automakers must prove they can build vehicles at least 25 percent more fuel efficient as they work toward meeting new standards of at least 35 miles per gallon by 2020. Suppliers are also eligible for the loans.

Although the bill doesn't restrict the loans to the Big Three, it directs the money to facilities built at least two decades ago.

"It was craftily done to keep out Japanese," said George Hoffer, economics professor at Virginia Commonwealth University. "None of the Japanese plants are 20 years old."

The Big Three all have plans to move fuel-efficient cars onto the market. Chrysler recently introduced three electric car prototypes with the promise of bringing one to market in 2010. Ford is retooling its large truck and SUV plants to build small cars and aims to double its hybrid vehicle production and lineup in 2009. GM has been pushing its Chevy Volt as the first mass-marketed, plug-in hybrid vehicle.

Congress approved the money last month and directed the Energy Department to write regulations for the program, including the interest rate for the loans, by the end of November. A day after the measure passed the House, however, Energy officials issued a statement vowing to "expedite" their actions, but expressing "significant doubts about whether distribution of loans by January 2009 is realistic."

"Because there are a number of legal and administrative requirements with which the Department must comply, such as the National Environmental Policy Act, we anticipate it could take at least 6 to 18 months or more, after necessary funds are appropriated, before [the] loans could be issued and funds disbursed," it said.

In addition to making sure any new facilities comply with environmental regulations -- a process that could take months -- Energy officials said they must abide by the Congressional Review Act, which prevents a regulation from being implemented until 60 days after the next Congress convenes in January.

"Congress had the opportunity to waive these requirements to speed up the process, but to date, has chosen not to," said Healy Baumgardner, an Energy spokeswoman. "Congress set a deadline of 60 days for DOE to issue regulations governing this new program, not for the loans to be made."

The delay outraged auto-state lawmakers in both parties. "It's inexcusable and inexplicable that they cannot get these loan guarantees out there faster," said Nate Bailey, a spokesman for Rep. Joe Knollenberg (R-Mich.), whose suburban Detroit district is home to Chrysler's headquarters.

This month, Senate Minority Leader Mitch McConnell (R-Ky.) joined the clamor. On behalf of more than 2,000 workers at a Ford plant in Louisville, McConnell wrote Energy Secretary Samuel W. Bodman to ask that the agency "comply with the guidelines in the bill," said McConnell spokesman Don Stewart.

Is a $25 billion loan enough? By many estimates, it'll cost all automakers, foreign companies included, $100 billion to meet the new efficiency standards in 2020.

Sen. Carl M. Levin (D-Mich.) said he is considering a push to include an additional $25 billion in an economic stimulus package that could come before Congress as soon as next month. But sources in the industry and Congress said more money would do little good unless it is released quickly.

While waiting, some automakers are running low on cash. Last month GM's domestic sales were down 18 percent from a year ago. Burning through more than $1 billion a month, GM posted a net loss of $15.5 billion in the second quarter. Ford's sales dropped 34 percent, and it posted a second-quarter net loss of $8.7 billion. Chrysler, privately owned, does not report financial information. It had a 25 percent slump in sales through September.

Reports of Chrysler combining with GM or forming alliances with Japan's Nissan Motor and France's Renault continue to swirl.

On Monday, Tracinda Corp., Kerkorian's investment arm, sold 7.3 million shares in Ford for an average $2.43 a share. Tracinda said it intended to sell its remaining 133.5 million shares.

Ford shares yesterday closed at $2.17, down 16 cents or 6.9 percent. The value of Kerkorian's stake in Ford has declined to less than $300 million from about $1 billion earlier this year.


© 2008 The Washington Post Company

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