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US Senate Approves $25B Loan Package for Auto Industry (corrected)

In a special session on Saturday, the US Senate passed leglislation including authorization for $25 billion in low-interest loans to automobile manufacturers for retooling older factories. The program passed as part of the Consolidated Security, Disaster Assistance, and Continuing Appropriations Act of 2009 (H.R. 2638), also called the continuing resolution on the budget. The bill now goes to President Bush for his signature.

The retooling provision instructs the Department of Treasury to provide up to $25 billion in low-interest loans to American automakers to finance the retooling of existing manufacturing facilities. These facilities can then be utilized to produce the next generation of alternative fuel and advanced technology vehicles.

The retooling program was originally authored by Senator Debbie Stabenow (D-MI) in March of last year and authorized as part of the Energy Independence and Security Act of 2007 (EISA 2007). This provision was also included in Senator Stabenow’s Green Collar Jobs Initiative, which was included in the Congressional Budget Resolution in June 2008.

Division A (the Continuing Appropriations Resolution), Section 129 of H.R. 2638 appropriates $7,510,000,000 for fiscal year 2009 for the Department of Energy (DOE) Advanced Technology Vehicles Manufacturing Loan Program Account for the cost of the direct loans as authorized by section 136(d) of the EISA 2007, to remain available until expended. Of that amount, $10,000,000 is authorized for administrative expenses in carrying out the direct loan program. Commitments for the direct loans are not to exceed $25 billion in total loan principal.

Section 136 of EISA 2007 directs the program loans for automobile manufacturers and component suppliers to be applied to pay not more than 30% of the cost of retooling or expanding an existing facility to produce qualifying advanced technology vehicles or components; and of engineering integration performed in the United States of qualifying vehicles and qualifying components.

[Correction:The loan program does not intend to cap at 30% of the cost. 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 US Senate Energy & Natural Resources Committee (post).]

Under EISA 2007, an advanced technology vehicle is one that:

  • Meets US Tier 2 Bin 5 emissions or better;

  • Meets any new emissions standard for fine particulates; and

  • Offers combined fuel economy of at least 125% of the average base year combined fuel economy for vehicles with substantially similar attributes.

To be eligible to receive the loan, the recipient must recipient be financially viable without the receipt of additional Federal funding associated with the proposed project, among other criteria.

For an automobile manufacturer to be eligible for a loan during a particular year, the adjusted average fuel economy of the manufacturer for light duty vehicles produced by the manufacturer during the most recent year for which data are available must not be less than the average fuel economy for all light duty vehicles of the manufacturer for model year 2005.

In making loans to those manufacturers that have existing facilities, priority will be given to those facilities that are oldest or have been in existence for at least 20 years. Such facilities can currently be sitting idle.



Rafael Seidl

If Congress approves the $700 billion bailout for the financial industry that he asked for, Pres. Bush will be hard pressed to stick to his ideological guns on this indirect subsidy for US automakers. Plus, this is an election year and Michigan is a swing state in a close race.

However, the following provision stumped me:

"To be eligible to receive the loan, the recipient must recipient be financially viable without the receipt of additional Federal funding associated with the proposed project, among other criteria."

Who would make this determination and how? Does this mean GM cannot get a low interest-rate to nurse along the Volt because they are already receiving R&D grants for battery research via the USABC program? How about Ford and Chrysler, who arguably lag GM in revamping their product lines and retooling their factories?

Are hybrid, CNG and clean diesel projects excluded because customers are already eligible for generous tax credits?


Like most things in the media today the financial crisis on Wall Street is highly inflated for dramatic effect (a sign of low ratings.) As the record of exaggeration grows - credibility declines.

Most financial professionals see the purchase of the realty-backed Freddie/Fannie loan portfolio as a shrewd investment at fire sale prices. The bailout involves little cash (10-15% portfolio value) for a lot of secured paper (a small portion of loans are in default.) Even conservatives estimate the doubling of portfolio value within 2-5 years as real estate recovers. That yields U.S. Treasury $1.5 - 2 Trillion; which Congress is wrangling over now.

The part we find curious is: "EISA calls a set aide of at least 10% of funding to provide awards to small manufacturers of less than 500 individuals."

Presumably they refer to workforce size and not product lines. This would mean that Tesla, Fisker and Phoenix would qualify?

For those who champion government action to regulate fossil fuels - low interest loans to automakers qualify as such. By supporting low fossil technology, government steers manufacturers to retool for fuel efficiency and lower GHGs.


Now this is serious money. When I hear $500K or $2M is being awarded to study/research this or that battery technology, I think, "what a feeble gesture." $25,000M means business. I'd like to see some "Green R&D" get the "Green" at this scale.

It is sad GM, Ford, Chrysler can not stand on their own two feet. Intel spends about $4B a year to modernize factories and develop new products.

Intel has the mindset that if it is possible for someone to create a product that would take market share from their existing product line, it is better for Intel to do it than their competitor. Put your head in the sand, and soon you'll find the rest of your dead body buried in the sand.

The big 3 are sad examples of a modern dynamic viable company, and these loans just reinforce that fact.


This is typical government legislative language intended to guide and not manage. The wording always sounds over controlling, but it is usually a complex way of expressing a simple principle. It seems better to have some guidelines on a low interest direct loan rather than give Treasury an authorization to spend $700b with no conditions at all.


This does not, and will not, solve Detroit's problems. What it will do is revitalize them somewhat so they can mass produce low-quality alternative energy/hybrid cars---and ultimately stay solvent enough, for a while longer, to take care of their legacy costs (health care & pensions of their retirees). I grew up in Michigan and know all too well of that state's over-dependency on the auto industry / industrial jobs - which according to Governor Jennifer Granholm in a television interview recently, they have lost over 400,000 of since Y2K. This move by the government is designed to prop them up so they can keep paying their legacy costs....there will be no serious gains in competitiveness or innovation...anything Detroit does will be done exponentially better by it's competitors - and Detroit will still resort to big sales gimmicks and waving big American flags (guilt manipulation) to sell cars.

John Taylor

In making loans to those manufacturers that have existing facilities, priority will be given to those facilities that are oldest or have been in existence for at least 20 years. Such facilities can currently be sitting idle.


Great idea. Finance the failures, but shut out the new green companies making Electric cars.


When Europeans do this, it's called Socialism.


I have read the post so far and I have to say as someone living in MI you do not get it. The big 3 are cash starved, the VEBA's and the cost cutting associated with new labor agreements will really kick in 2010 if my memory is correct. But this gives them money to retool, it has to be for a product that gets 25% better fuel economy. They have to and make it to 2010, this cash gives them money to retool and have their existing cash for the burn rates they have been experiencing.

Some great cars are coming from Ford and GM in the next few years, on top of their some great new entries. They need to get their 1st, these cash influx will do it.


Many will (rightfully?) call this helping failure.

Do the Big-3 deserve to be helped or should they just move aside and make room for better managed companies such as Toyota, Honda, Nissan, Hyunday etc?

Would similar investments in advanced batteries/super-caps and e-vehicles start-ups be wiser.

Makes you wonder where the American knowhow, leadership and enterprising capabalities have gone to.

The system is having major difficulties to compete and is cracking in many places.

Will @25B or $250B or even $2500B be enough to make a significant long term difference?


@ HarveyD

My theory is that this has more to do with propping the Big 3 up so they can maintain funding their legacy costs (healthcare & pensions of their retirees) than anything else. As soon as the legacy costs have been radically reduced with either a nationalized US healthcare system or as the vast block of retirees move on from this world, the US government will shut down the gravy train of $$$$$ on demand. If you google "legacy costs""automakers" you can learn all about how massive an issue it is for the Big 3. ...ejj...

John T

I still don't get this. They have put their head in the sand, and gotten a huge foot on their throat...from the UAW. Now we all get to bail them out?

Nobody has to bail out Toyota or Honday or Hundai. Nobody is bailing me out if I screw up my company by mismanagement. Why do I have to pay for theirs???

What about the new companies that are busting their butts to make it now and running lean and mean with green technologies? Why does Detroit deserve help when they are going to turn around and use it to step on these new small companies?

This is socialism, or even worse....the gov't trying to be socialist and "picking" which companies will survive.

factory rat

A few clarifications..
- despite the media narrative, this is not about or limited to B3
- any firm that produces here is eligeable and Toyota will no doubt get some money for Prius factory.
- to the contrary, clean diesel and full hybrids are about all that will qualify
- Most tooling $$ will go to suppliers - they make the stuff that is the advanced technology
- small firm set-aside is typical of these type programs and was mostl ymeant for 2nd and 3rd tier suppliers - but Tesla should get lots of $$ here too
- most of the bucks for OEMs will come through the support of engineering jobs the language covers
- since the loans cover 30%, this investment leverages $80 billion in private investment
- this is for production of vehicles that use much less fuel, not vapor ware, not R&D, but products that reduce GHG and saveoil. If your company is ready to go with vehicles or components, it will have a very high probability of qualifying and getting a loan


These loans are in keeping with cooperative development programs like USCAR, US Advanced Battery Consortium, Freedom CAR, U.S. Alliance for Technology and Engineering for Automotive Manufacturing and nearly 30 other consortia. The issue is grounded in national security. Loans to industry that can and should lower foreign oil dependency are prudent - unless we want to wait for industry financing which will take longer. These industry loans are just that - LOANS that help keep people working and modernize tooling.

stas peterson


The earnest American do-gooder greens have demanded, and demanded, cleaner and cleaner cars, better then any where else in the world. And they demanded them, two decades sooner then rest of the world. Europe doesn't even conceive of matching US toxic emissions regualtions foras far as they project proposed new standards, well into the 2020s.

Then the demagogues added demands for better and better mileage cars, which were whistled through Congress with nary a thought, overnight, in less than 48 hours, to cheap applause. Even as they levy the costs on the Goose who lays the golden eggs.

Did the earnest clowns or government do-gooders ever include the money to develop the technology demanded in the laws? Never. Did they ever estimate the financial or competitive effect on the companies? Get real. Of course not.

If the technology didn't exist yesterday, why then it must be a Conspiracy by the evil men in Detroit, who were withholding the benefits these Green Saints demanded, yesterday, out of pure malice. Standard politics: Claim the credit and demonize the doers, for any delay or failure.

Well now the idiots have strangled the Golden Goose to the point that the entire industry, not just a weak sister, like Chrysler is financially failing. The Golden Goose is dying.

These Socialist Greens privatize the costs, and claim the public benefit and credit for themselves, without lifting a finger. They balk at the thought of actually paying the freight for what they mindlessly wanted, on their ridiculously compressed, unrealsitic but required, schedules.

Never did any of these fatheads propose that the government pay for the development of the technology demanded?

Quelle Novel Idee?!?

The auto makers were expected to bear the cost. But US automakers bear an out sized share of costs, more than other automakers, for two reasons.

First, with a majority of their vehicles are sold in the US market, they must absorb the development costs on the preposterous schedules demanded, or suffer substantially from reduced sales. Then they must still compete and offer vehicles with these costs embedded, against foreign-makers with a much smaller portion of their vehicles having the extreme US regulations and costs, imposed on the fleets they offered for sale.

Sometimes, American makers have subtracted other features from their cars, to match costs, only to have the Pecksniffian punks criticize Detroit for offering poorer products.

Secondly, US regulations are much tougher than any where else in the world. So the technology must be developed here, and initially fielded here. That is expensive. Foreign makers can then piggyback on the development after the technology has been developed by others.

US makers can not afford to abandon a US market segment due to the large financial impact, but foreign makers have done so in the past in the US, until requirements sort themselves out into realistic costs.

For example, no foreign maker builds any light diesel trucks here, yet. The T2B5 technology is being pioneered and payed for, by Chrysler/Cummins, and Ford and GM, perforce.

The foreign makers will come back in, after the heavy costs are borne by US makers. Look at Nissan's method of coping. Nissan's Titan pickups, will really be Dodge Rams for the next several years. Toyota is reconsidering its Tundra offerings. And Honda is saying it may abandon the truck segment completely.


I think we can help them this time. If they blow it, that is it. We may be able to help them with retiree health care in exchange for meeting CAFE standards early.

Japan has MITI and the Koreans are notorious for their government/corporate cooperation. It is not all the "free market" that some would like you to believe.


This kind of corporate socialism is more accurately called 'fascism' or 'national socialism'! Sound familiar?
The shareholders get to pretend they are holding ownership in the corporation, but politicians and some government bureaucrats tell them how to get their companies managed. Of course, it doesn't help when shamelessly overpaid executives are driving the share prices by buying back their own stock and then getting paid bonuses for 'increasing shareholder value'. Meanwhile, the companies loose market share and profits, cut jobs and product lines. Where exactly is the increase in capital value of the company that would justify a REAL increase in share value?
Socialism of any stripe simply does not work. Whether it's the government kind or demanded by unions! And nationalizing health care will not improve anything either!
For the remaining points see @stas peterson.


Because if they didnt then all the high pay car jobs would go poof. This is nothing more then a bribe to keep the uaw alive anouther decade and thus keep the dems in money.

If they didnt do this more factories would close in the us and more would open in mexico. Its realy just that simple.


It's amazing how the US auto industry is such a hot button topic.
I think it's because it reflects so much of american society: the worst snd the best.
If there's a chance that $25B can speed up development of better cars, then it's worth the risk.
After all, we've spent trillions on Iraq. Isn't our own country worth a small pitance (in comparison).

Will S

I've been opposed to the Big 3 obtaining such loans; when there was a push for more efficient vehicles (PNGV), the Big 3 only gave a half-hearted try, and sought to have the program killed, because their approach is to throw lobbyists and lawyers at any situation. Meanwhile, Toyota and Honda turned to engineers and designers instead, and provided the real leadership with the Prius and Insight, etc.

But since the Big 3 now have their loan, they can choose to make small incremental steps and seal their doom, or make great leaps and get back onto a competitive footing. GM could create a line of cars based on the Volt (i.e., station wagon, small two seater commuter), or even revive the GM Lean Machine and/or Runabout, which are actually 3 wheelers that are categorized as motorcycles. Throw in the RMI Hypercar into the mix, and they could regain their leadership position.

Ford could revive their Prodigy and be right back in the ballgame; same with Chrysler and their ESX-3.


A serious question remains.

Should the tax payers finance mismanagement, i.e. the car builders who refused to build leaner, cleaner, better cars to meet CAFE and customers transportation needs but forced brick shape gas guzzlers down our throat for so many years?

If we do, should the responsible managers be laid off? Should labour management and union members reduce there salaries and many unjustified goodies the got over the years?

Should this and future financial assistance be restricted to advanced lower cost batteries and electrified vehicles?

Otherwise, the $25B will not achieve much and we will be at the same point in 2 or 2 years.

The acquired culture has to change.

Reality Czech
Then the demagogues added demands for better and better mileage cars, which were whistled through Congress with nary a thought, overnight, in less than 48 hours, to cheap applause.
If you don't count 30 years of trying to increase standards since the 1970's.
These Socialist Greens privatize the costs
Detroit and the oil companies socialized the costs of both domestic and Middle East oil for decades. This effectively subsidized the UAW too. None of these are friendly to Greens.
US regulations are much tougher than any where else in the world. So the technology must be developed here, and initially fielded here. That is expensive.
It is also the historical formula for dominating a market with first-mover advantage. Detroit could have had that market if it had lobbied to keep PNGV. Detroit lobbied against it instead, and ceded the initiative to Toyota. The rest is history.

Rarely at GCC do we see language soar to the heights of "Pecksniffian punks..." A satisfying piece of Dickensiana. Respect is paid. Respect.


U.S goverment is crazy... Not too long ago larry burn from gm and toyota said they were ready to commercialize fuelcell cars and they asked for goverment and oil compagnies to put hydrogen refueling stations. Now they decided to do nothing abouth it and they are looking for others solutions that is sub-par to hydrogen. When they find something good for consumers, then they try to please trillardaire$ oil compagnies to not lose their market and pollution problems by telling car compagnies that battery are better so oil compagnies will still keep big trucking, airplanes, ships, etc as consumers we will be left with limp batteries that have a hard time propelling even a golf cart for 5 miles at 10 mph while hydrogen permit par performance or even better performance for car, trucks, airplanes, ships, electricity generation at homes, motorcycles, lawn mowers, all that without pollution and cheap cost for the fuel.


Current U.S. subsidies (grants, tax incentives and low interest loans):

Housing - Fannie Mae, Freddie Mac (combined private & public)- $700B
Education - college loans FY 2007-8 $34.56B
Agriculture - FY 2007 Farm Subsidies $25.0B
Ethanol Blenders Credit - FY 2007 $3.0B
Coal & Refined Coal - FY 2007 $3.0B
Nuclear - FY 2007 $1.267B
Wind - FY 2007 $724 million
Natural Gas - FY 2007 $227 million
Solar - FY 2007 $174 million
Hydroelectric - FY 2007 $174 million
Geothermal - FY 2007 $14 million

"To be eligible to receive the loan, the recipient must recipient be financially viable without the receipt of additional Federal funding associated with the proposed project, among other criteria."

This means they need to be finacially viable separate from any federal funding. They can receive a number of federal grants, but those are for specific research, and not to be used for the cost day to day operations. The loans, will be for a specific purpose also. That of retooling to produce future tech automobiles, the definition of which will be set by the federal government. Day to day operation cost (current model production, and engineering that has to do with other vehicles etc.) will have to come from there own coffers.

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