Carmakers look for handout: ?Big 3' ask Congress for $50B in low-interest loans

Sep 20, 2008 (New Haven Register - McClatchy-Tribune News Service via COMTEX) -- GM | Quote | Chart | News | PowerRating -- Sep. 20--At the close of a week that left Wall Street battered by the collapse of a major investment bank and government intervention to halt systemic bleeding in the financial markets, three of the nation's big automakers are waving white flags, too.

Top executives of the "Big Three" carmakers in Detroit -- General Motors Corp., Ford Motor Co. and Chrysler LLC -- sent a letter to U.S. House Speaker Nancy Pelosi, D-Calif., this week asking Congress to release $25 billion in low-interest loans it authorized last year.

Congress authorized $25 billion in loans in the 2007 Energy Independence and Security Act, which increases fuel economy standards for cars by 40 percent to at least 35 miles per gallon by 2020.

There has been no official action on the auto industry's request to expand the funding by another $25 billion. That remains in the balance as the nation digests a series of bailouts that began with Bear Stearns, followed by Fannie Mae and Freddie Mac.

The automobile manufacturers say the funds would enable them to modernize their plants and answer consumer demand for more fuel-efficient vehicles.

The investment bank Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection this week and Bank of America entered into a deal to acquire investment bank Merrill Lynch Inc. The U.S. Treasury and the U.S. Federal Reserve extended a loan to insurance giant AIG and unveiled a plan for the government to buy deep-discounted mortgage-backed securities that banks and other firms can't unload.

Estimated at $500 billion to $1 trillion, the bailouts are amounting to the largest in the nation's history.

Nicholas Perna, economic adviser to Webster Bank and visiting lecturer in economics at Yale University, said that if the government had allowed Fannie Mae and Freddie Mac to fail, the damage could have been more severe. "Your house is going to be worth less even if you had nothing to do with it," he said of the ongoing subprime mortgage and foreclosure crisis.

"Taxpayers are now in the mortgage business, the insurance business and it looks like we're going to be in the auto business," said Donald Klepper-Smith, chief economist at DataCore Partners LLC in New Haven.

Car and truck manufacturers say they need the low-interest loans because their credit ratings have declined in an economy marred by job losses, record-high energy costs, falling home values and tight credit.

They have found allies in more than 70 members of Congress and 10 governors who say the health of the auto industry is critical to gaining energy dependence and creating jobs as clean car technologies are developed.

Peter Gioia, vice president and economist for the Connecticut Business & Industry Association, said the era of cheaper oil prices is gone, despite the current respite from declining per-barrel crude oil costs.

The survival of America's auto industry is linked to technology, he said. "What the auto industry needs to do in this country is compete with foreign manufacturers for high-mileage, reasonably priced, small cars," Gioia said.

A spokesman for Pelosi said that the $25 billion already authorized breaks down into $7 billion in loans with the rest in the form of guarantees. Congress is in discussions about releasing the funds either as part of the 2009 budget package or a second stimulus package.

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