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Senator Bingaman Says Auto Loan Program Not to Be Limited to 30% of Facility Cost

29 September 2008

The $25-billion loan program for automakers and suppliers to retool older facilities, passed by the Senate on Saturday and heading to President Bush for signature, does not intended to cap loans to 30% of the cost of a facility as reported here earlier (earlier post), according to Senator Jeff Bingaman (D-NM), Chairman of the Energy & Natural Resources Committee.

Loans will be uncapped and can go up to 100% but are typically limited by regulation to 80% of total costs, according to Michael Carr, Counsel for the Committee.

Finally, I have been told there may be some confusion about the terms of the loans as the provision creating the loan program references the “activities” that are the subject of a grant program also authorized in the same section of EISA. The grant program is limited to 30 percent of the costs of a facility. This is a fairly typical cost share for grant programs. Some have raised a question as to whether this 30 percent cap should also apply to the loan program. That is not the way I read the language of the law and was certainly not our intent in writing the provision.

Moreover, I would argue that it would dramatically limit the effectiveness of the program as it would require companies to go to tight credit markets for 70 percent of their financing, precisely the problem we were seeking to remedy with the creation of the loan program. While I don’t expect the Department of Energy to take this limited view of the program, I wanted to go on record here to help alleviate any confusion that may exist. I look forward to working with the Department to aid them in getting this program up and running.

—Senator Jeff Bingaman

The new bill providing loan funding for industry picks up on qualifying activities listed under the Advanced Technology Vehicles Manufacturing Incentive Program, passed in the EISA 2007 bill (Sec. 136). Section 136 however, specifies a 30% cap on awards.

The short of it is that capping loans at 30% of costs would be weird. I don’t think we’ve done that before.

—Michael Carr

The loan program is applicable to automakers and component suppliers, including battery makers, Carr emphasized.

September 29, 2008 in Batteries, Fuel Efficiency, Fuels, Policy | Permalink | Comments (9) | TrackBack (0)

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why dont we just call it the GM welfare bill? other manufacturers have been able to work out how to find the money to retool and improve their vehicles while GM just used the money for their execs who are doing a terrible job. Now they cant compete unless they build whole new facilities that they cant afford. I'm not a fan of GM mismanagement and think they really need their feet held to the fire for another year or so before I would consider any bailout. the rest of the manufacturers have made an effort and probably dont really need the money.
$25 Billion is alot less that $700 billion, but its still distasteful.

Some of it may come from political considerations. Ohio put up money to make the Cruze in Lordstown, Ohio. Senators and Representatives may have been in the mix as well.

When Chrysler wanted a $1b loan decades ago, they said that 1000s of jobs were at stake. That argument may not have as much pull today.

After reporting the largest corporate losses in history ($3.0B 1979-1981) in January 1980, President Jimmy Carter signed the Chrysler bailout bill into law. The plan provided $1.5 billion in loan guarantees, and required the company to secure another $1.43 billion in private financing, concessions from banks and suppliers, and mandated $462.5 million in concessions from the company’s union employees.

Just two years later Chrysler reported a profit. In 1983 Chrysler paid off the federal loans with interest - seven years ahead of schedule.

Investors know - you buy low and sell high - you always come out ahead.

NRG nut,
Good to remember that Chrysler paid their loans back ahead of sched and if full.
What's missing this time is the UAW concessions AND the fact that Lee Iacocca reduced his own salary to $1.

right, the chrysler bailout had a strong CEO and a motivated union. GM management sucks and the union could care less about its survival. they struck last year, shutting down its only profitable line. the lack of a cap is what opens it to total government financing so there is no incentive to perform. If they needed 70% industry financing they would borrow alot less and be hounded to perform. i dont see GM turning things around in two years with their current management.

AND the fact that Lee Iacocca reduced his own salary to $1.

You're not trying to say that he didn't get stock options, are you? I'm pretty sure Lee did all right.

The monies allocated for these loans is not to bail out a bankrupt business - it is to finance retooling of plants and factories that will put people to work on cars meeting new standards. Granted, unions and their pension funds play a big role in the success or failure of these high salary automakers. And we do not see UAW kicking in a couple billion$ from their funds to help - yet.

But given California's new subsidies for developers - loaning money to retool automakers is in line with sustainable business practice. And yes, Mr. Iacocca took his compensation in soaring stock prices - deservedly so.

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This is a fairly typical cost share for grant programs. Some have raised a question as to whether this 30 percent cap should also apply to the loan program. That is not the way I read the language of the law and was certainly not our intent in writing the provision.quick payday loans online

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