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Bush wants to use fuel-efficiency loans to bail out Big Three

The White House is opposed to allocating part of a $700-billion rescue fund to Detroit.

November 15, 2008|Martin Zimmerman | Zimmerman is a Times staff writer.

As Congress begins to craft a rescue package for U.S. automakers, concerns are growing that the billions of dollars the government already set aside to speed development of fuel-efficient vehicles could get sucked into the black hole of the industry's financial woes.

The Bush administration said Friday that it wanted Congress to pass legislation next week that would let foundering American automakers quickly tap the $25-billion pool of low-interest loans intended to help them retool factories to meet tough new fuel-economy standards.

Those loans, approved in 2007, were to be doled out over the next few years. That would be too late to help an industry on the brink of insolvency.

"One of the things that the auto industry wanted was help sooner than those loans could provide," White House Press Secretary Dana Perino said.

The Big Three U.S. automakers -- General Motors Corp., Ford Motor Co. and Chrysler -- have asked Congress for swift financial assistance as they battle their worst sales slump in almost two decades. A week ago, GM and Ford reported huge losses for the third quarter, and GM warned that it was in danger of running out of cash.

Next week, Congress is expected to consider a separate $25-billion bailout package for the Big Three that would tap the $700-billion rescue fund lawmakers set up for the nation's financial industry. The Bush administration opposes using those funds to bail out the automakers.

"Democrats are choosing a path that would only lead to partisan gridlock," Perino said.

That prospect worries environmental groups as well as non-Big Three automakers and parts suppliers that hoped to apply for the loans to fund advanced technology projects.

"This money should be used to help the automakers compete with cleaner, more fuel-efficient cars," said Michelle Robinson, director of the Union of Concerned Scientists' clean vehicles program. "That's what's good for Detroit and good for America."

Under rules released this month by the Energy Department, which is administering the program, the low-interest loans are available to any "financially viable" car company or auto parts maker that meets certain criteria, as long as the funds are used for "advanced technology vehicles" or fuel-saving components made in the U.S.

Chrysler, which is developing an electric car and two plug-in electric hybrid vehicles, has already applied for the loan program. GM, which is developing an extended-range electric car called the Volt, plans to submit an application next week.

Electric car maker Tesla Motors Inc. plans to apply Monday for $450 million in loans to help finance a car factory and a plant that would produce advanced lithium ion batteries; both would be located in California.

Diarmuid O'Connell, San Carlos, Calif.-based Tesla's vice president of business development, said Friday that dropping the requirement to use the loans for fuel-efficient vehicles could divert money from important high-tech projects.

"The threat is that our interests are sidelined in the rush to bail out these failed enterprises," O'Connell said.

It's not clear that the Big Three would even qualify for the Energy Department loans under the rules issued last week. To receive a loan under the program, a borrower must be "financially viable" and "demonstrate a reasonable prospect" that it will be able to pay back the loan.

On Thursday, Chrysler Chief Executive Robert Nardelli said it would be tough for his company to make it through the current downturn without federal help. And last week, GM President Fritz Henderson said his company is "cutting to the bone" but could run out of money next year without a handout from Uncle Sam.

When asked about the eligibility of the Big Three for the loan program given their financial woes, an Energy Department official on Friday said, "We will wait to see what the application says and make a determination at that point."

There is speculation among industry watchers that a new Energy secretary named by President-elect Barack Obama could relax the eligibility requirements. The Democrat campaigned heavily in Michigan and has championed aid for U.S. automakers.

Obama's support is likely to come with conditions, however. Bloomberg News reported that former Labor Secretary Robert Reich, an economic advisor to Obama, is urging wage and benefit cuts for workers and executives as part of any government bailout of the industry.

Leaders of the United Auto Workers oppose wage or benefit cuts for workers or retirees.

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martin.zimmerman@latimes.com

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