Friday, September 26, 2008

Automaker Bailout Appears Imminent; Detroit May Ask for More

Late yesterday, the House of Representatives passed a plan guaranteeing $25 billion in federal loans to Detroit automakers. The New York Times reports, "Unwilling to risk one last fiscal standoff with President Bush, the House on Wednesday passed a stopgap spending measure that pushes critical spending and energy decisions off until 2009 and into the hands of the next president." The bill includes "$25 billion in loan guarantees for the nation's auto manufacturers," but stipulates that the money must be used to help the companies make more fuel-efficient cars. Automakers would be required to begin making payments on the loans in five years, and complete payments within 30 years. The Detroit Free Press adds, "The Senate is expected to pass the bill today, and the measure should get a signature from President George W. Bush shortly thereafter." The scope of the loan measure is hard to overstate. This is by far the largest federal intervention into the auto industry. The Free Press notes, "The loan deal dwarfs the $1.2-billion bailout of Chrysler Corp. in 1979, and reflects the deep economic crisis threatening the survival of Detroit automakers and the companies that rely on them." Detroit, however, doesn't get the money right away. USA Today notes, "The second battle... over rules governing how the loans will be doled out now won't be decided until after the Presidential election." Industry analyst Rebecca Lindland of Global Insight told USA Today, "It's like getting an early Christmas gift and not being able to use it until spring. The value of this can't really be evaluated until they know the parameters. I have to reserve judgment until the explanation for how they can use this is clear." The automakers had wanted the rules governing how to qualify for the loans written now, before the presidential election takes place. They believed that "getting the rules written before the elections would have given the industry more clout in arguing for maximum flexibility in what qualifies," because Michigan and Ohio -- the two states where the auto industry employs the most workers -- are considered critical swing states in the election. JP Morgan analyst Himanshu Patel told USA Today, "The rules governing the distribution of the loans may become more onerous as the desire to win Michigan/Ohio votes would obviously become irrelevant after the November presidential election." The Big Three may not be finished asking for Federal help. The Detroit News reports, "Several Michigan legislators said they would seek approval of another $25 billion in loans next year." Research the best cars in every class with U.S. News' car rankings and reviews. from""

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