House Passes $25 Billion Bailout of Automobile Industry

Car Makers and Car Parts Industry Will Be Able to Access Low-Cost Loans

The U.S. House of Representatives has passed a $25 billion bailout package for the auto and auto parts industries, both of which would be able to access low-interest loans to modernize their industries and get through the recent credit crunch. The auto and auto parts industries are critical to the economic health of the Midwest, particularly the key states of Michigan and Ohio, whose Electoral College votes could decide the 2008 Presidential election.

The legislation, which is part of the $600 billion govern met budget bill, will establish a $25 billion financial pool to be overseen by the U.S. Department of Energy (DOE). The DOE must write the regulations governing the program within 60 days of the bill being enacted into law. Currently pinched for funds, Detroit would like the money to start flowing in January 2009, but the DOE says that the loans likely will not be made for another six to 18 months.

Detroit is forecasting a dearth of investment capital through 2010. The budget bill that contains the loan legislation will not be voted on until Saturday, September 27th.

The intent of the House bill is to provide finance for the automobile and auto parts industries so they can modernize their plants and equipment to produce more fuel efficient vehicles. Under the legislation, car makers and suppliers will get loans for the development and manufacture of motor vehicles that will boost their fuel efficiency by at least 25%. Detroit had wanted no such restrictions on the loans, but to be free to allocate the capital to any area it wished to.

The loan disbursement time-line will be delayed as the DOE must write rules that are cognizant of environmental protection regulations.

The bill had the support of both Congressional Democrats and Republicans, both of which are currying favor in the Midwest in the run up to the Presidential elections. Ironically, Congressional Republicans had long been opposed to federal regulations that would have mandated better fuel efficiency and forced Detroit to produce vehicles that would be more-marketable during this period of high gasoline prices.

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