Loans and More Loans... Please Do Not Use the Word Bailout

It seems like some are confused by all the $Billions$ being bandied about by Congress lately. Several months ago, Congress approved a $25 billion loan program to re-tool or build facilities capable of making cars which are 25% more fuel efficient than the cars being built in MY2005. Suppliers can also apply for the loan. GM, Chrysler, and even smaller car companies like Tesla have already applied for the loans through the DOE program.

Tesla applied for a $400 million loan (very frugal of them!), while GM and Chrysler did not disclose how much they want (found via TechCrunch). Ford plans on applying (or has already done so) by yesterday.

But that loan program has its drawbacks.  Specifically, the amount of time needed until the program actually gives out the money (up to a year). Which is why Detroit is pushing for a completely separate loan program from Congress during the current session. What they want now is access to the $700 billion set aside for the banking industry, or the set up of a whole new loan program. A program that would give them access to cash now.

For instance, the current bill sets up a $25 billion loan program with "initial interest rates of 5 percent to the U.S. automakers and suppliers in exchange for a federal stake in the companies or warrants that would let the government profit from future gains."

That would bring the loans available from the government up to $50 billion for the car companies.

And GM, especially, really, really wants the second program. But given the rhetoric from the Senate, they need to push back on some of the 'myths' they believe are prevalent throughout the US about the auto industry (Link- Detroit Free Press). They are pushing to build popular opinion through their blog and through e-mails to their customers. First a description of GM from GM's blog:

* A leaner company that has reduced its annual structural costs in North American by 23 percent, or $9 billion, since 2005, and are on track to reduce them by about 35 percent, or $14-$15 billion, by 2010. We also negotiated a landmark labor agreement with the UAW last year that will enable us to virtually erase the competitive gap we’ve had with foreign automakers.
* Award-winning products in the Chevy Malibu and Cadillac CTS, (Motor Trend magazine’s 2008 Car of the Year). The Chevy Malibu beats the Toyota Camry in highway mileage, and was recently ranked the highest in initial quality in the midsize car segment by J.D. Power & Associates.

In fact, 13 of our last 15 new product launches in the U.S. were cars or crossovers, and 18 of our next 19 new products will be, as well. Mr. Friedman, we also think you’ll be particularly interested in the huge progress we are making to develop a broad range of advanced propulsion technologies.

* For 2009, GM will offer 20 models in the U.S. that get 30 miles per gallon or better on the highway –twice our nearest competitor.
* We now sell six hybrid vehicles, with three more on the way by the middle of next year.
* We have more than three million flex-fuel vehicles on the road in the U.S., which are capable of running on bio-fuels like ethanol and we are committed to making 50 percent of our annual production flex-fuel capable by 2012.
* We’ve established the world’s largest fuel-cell test fleet by placing more than 100 Chevy Equinox Fuel Cell vehicles in the hands of U.S. drivers.
* And perhaps most important, we’re running all-out to get the Chevy Volt extended range electric vehicle to market as soon as possible. When running off its battery, the Volt will be able to drive up to 40 miles–more than the average daily commute for over three-quarters of Americans–without using a drop of gas.

And from the e-mail sent out to GM owners:

You made the right choice when you put your confidence in General Motors, and we appreciate your past support. I want to assure you that we are making our best vehicles ever, and we have exciting plans for the future. But we need your help now. Simply put, we need you to join us to let Congress know that a bridge loan to help U.S. automakers also helps strengthen the U.S. economy and preserve millions of American jobs.

Despite what you may be hearing, we are not asking Congress for a bailout but rather a loan that will be repaid.

The U.S. economy is at a crossroads due to the worldwide credit crisis, and all Americans are feeling the effects of the worst economic downturn in 75 years. Despite our successful efforts to restructure, reduce costs and enhance liquidity, U.S. auto sales rely on access to credit, which is all but frozen through traditional channels.

The consequences of the domestic auto industry collapsing would far exceed the $25 billion loan needed to bridge the current crisis. According to a recent study by the Center for Automotive Research:

• One in 10 American jobs depends on U.S. automakers
• Nearly 3 million jobs are at immediate risk
• U.S. personal income could be reduced by $150 billion
• The tax revenue lost over 3 years would be more than $156 billion

Discussions are now underway in Washington, D.C., concerning loans to support U.S. carmakers. I am asking for your support in this vital effort by contacting your state representatives.

Please take a few minutes to go to www.gmfactsandfiction.com, where we have made it easy for you to contact your U.S. senators and representatives. Just click on the "I'm a Concerned American" link under the "Mobilize Now" section, and enter your name and ZIP code to send a personalized e-mail stating your support for the U.S. automotive industry.

Let me assure you that General Motors has made dramatic improvements over the last 10 years. In fact, we are leading the industry with award-winning vehicles like the Chevrolet Malibu, Cadillac CTS, Buick Enclave, Pontiac G8, GMC Acadia, Chevy Tahoe Hybrid, Saturn AURA and more. We offer 18 models with an EPA estimated 30 MPG highway or better — more than Toyota or Honda. GM has 6 hybrids in market and 3 more by mid-2009. GM has closed the quality gap with the imports, and today we are putting our best quality vehicles on the road.

Please share this information with friends and family using the link on the site.

Thank you for helping keep our economy viable.

Sincerely,



Troy Clarke

What do you think.  Have the Big 3 really changed their colors?  Do they 'deserve' the second loan program?  Will they survive through the next six months?