Automakers seek federal help
DETROIT — The auto industry this week begins a hectic push to get Congress to fund $25 billion in promised loan guarantees. Some in the industry even hope for an additional $25 billion.
Unclear is the effect the federal takeover of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) will have on their efforts. The auto plan would mark the third time this year the government has stepped in to aid ailing industries. It helped bail out investment house Bear Stearns earlier this year.
Ford (F) CEO Alan Mulally, after a speech Monday in Michigan, told reporters the plan is not "a bailout."
"We haven't decided the exact nature of it, but I think it's going to be a loan at lower interest rates," he said. "We're going to have to pay it back."
The energy bill Congress passed in December mandated a 40% increase in fuel-economy standards by 2020 and provided for $25 billion of loan guarantees to help automakers and suppliers upgrade plants for new, fuel-efficient technology and vehicles. But lawmakers have not yet approved money for them — $3.8 billion for the upfront costs of the initial $25 billion in loan guarantees.
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High gas prices and declining home values have pushed auto sales down 11.2% this year, straining cash reserves to finance new technologies. The housing collapse disrupted credit markets.
Low-interest loans thanks to government backing would save millions for struggling automakers. Bond ratings deep in junk territory are forcing them to pay upward of 20% for credit.
"I wouldn't say they automatically go to bankruptcy without the loans, but it's really going to be touch-and-go if they don't get them," says Shelly Lombard, an analyst at Gimme Credit. "The capital markets are terrible right now. You don't want to be shopping for money right now, and you don't want to be an automaker shopping for money."
Congress was back Monday for a planned three-week session after the political conventions, where auto lobbyists already were pushing the program.
Working for the industry is that auto-heavy Michigan and Ohio are key states for both candidates, making it more likely the loans will get bipartisan support, says David Cole, chairman of the Center for Automotive Research. "The other thing working in the back of their minds is that the cost of the loan guarantee is pretty small compared with the consequences on the economy if one of these companies fails."
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