$25B Loan, Not Bailout, to Detroit

President Bush signed a spending bill Tuesday that includes $25 billion in low-cost government loans for the auto industry. The idea is to allow automakers to borrow money in order to retool plants to build more advanced technology vehicles—including hybrids, plug-in hybrids, and clean diesel cars—with a goal of boosting fuel efficiency by 25 percent.

The low-cost loans will carry a discounted interest rate of about 5 percent—enough to save Detroit automakers more than $100 million for each $1 billion borrowed. Otherwise, the Detroit Three would face interest rates of 15 percent or more. Congress also approved $7.5 billion to cover the costs of insuring the loans.

“This is not a bailout,” said Walter McManus, auto economist at the University of Michigan. “Investing in new products and technologies takes cash. Without incentives to invest in the fuel-efficient products that consumers are now demanding, Detroit will continue to spend scarce resources to sell yesterday’s products instead of developing tomorrow’s cleaner products.” Automakers have up to 25 years to repay the money.

The bill requires the Energy Department to draft final rules overseeing the loan program within 60 days of it becoming law. It also provides $10 million to hire outside consultants to help them write the rules. That process could take “six to 18 months or more,” according to Energy Secretary Samuel Bodman.

As Congress continues its current debate about the wisdom of a $700 billion bailout of the financial industry, there appears to be widespread support—among auto executives, labor unions, and industry observers—for the $25 billion in loans to auto companies.

“Advanced technologies don’t come for free,” said Rusty Heffner, associate, transportation practice at consulting firm Booz Allen Hamilton. “Advanced technologies lay the groundwork for bigger steps into the future. They lay a technology path.”

Yet, Detroit automakers continue to report record losses, based on decades of investment into previously profitable gas-guzzling large cars and trucks that are now out of step with consumer demand. Should taxpayers be concerned if the government is making a good loan? “I think it’s a safe bet, that is, if we believe in hybrids and plug-in hybrids,” said Heffner. “Don’t we all agree that it’s the direction we should be going?”


  • Paul Beerkens

    “Without incentives to invest in the fuel-efficient products that consumers are now demanding, Detroit will continue to spend scarce resources to sell yesterday’s products instead of developing tomorrow’s cleaner products.”

    A naive observer would suggest that the fact that consumers are demanding fuel-efficient cars should be an intensive in itself. I think it demonstrates how broken the current management of the large US auto manufacturers really is.

    I hope that this bail out plan includes a rule that the CEO’s who got us in this situation by ignoring the real world for the last 20 years will not get any fat bonuses or golden parachutes.

  • ex-EV1 driver

    Anyone know if there is anything in this bailout to help the new startups such as Tesla that are also developing new advanced technologies or is this money reserved for incompetent fat-cats only?

  • Anonymous

    Why bother loaning 25 billion to the big three when you could loan 1 billion to Tesla and Aptera and solve many problems. I fail to see how capitalism can lead to rapid progress if the successful companies and start-ups have to compete with companies who fail to innovate and beg for loans. Capitalism needs consequences.

  • bill cosworth

    Great!

    I saw GM sales were way ahead of toyota this month and honda also.

    I am glad GM is now building better products than the imports and now we can keep money here in the USA

    No wonder why our economy is in bad shape everyone buying foreign cars and now GM and ford are making better cars than the imports and the consumers are listing.

    When the Volt is produced we will be one step away from oil dependence.

    I wish the USA well and I wish the USA car makers well on there way to recovery and new fuel efficient vehicles.

    The SUV is over and now its time for new american cars to shine.

  • Phil Mcdonel

    I agree

    Why are people people so against american industry.

    UMM lets see

    money goes to iraq = no way
    Money goest to US manufactures helps US jobs and helps our sons and daughters have a future = yes people

    Get a clue people help our industry and stop being anti American or you will be living in a trailer in the future.

  • Cindy Hallo

    Ya get with the program

    Obama drives a Ford Esape Hybrid

    American CAR!

    Stop buying foreign junk.

  • Joe

    I am and have USA cars and will agian ,but when you buy
    Draw slides you also demand USA
    Thanks Joe

  • Baltimore Prius Owner

    To Bill, Phil and Cindy,

    Let me get this right. You want me (an average American) to purchase vehicles the Big Three ‘thinks’ I want, not what I want. Remember, I am the customer. They have been sleeping for years, (albeit in the same bed as Big Oil), and you want me to ignore their inaction? When sales of Toyota’s Prius began rising, GM’s Bob Lutz said, and I quote, “it’s just a fad and will go away soon”. By now you would think someone at GM would have changed the locks on the doors!!!!!

    We purchased two Priuses because it’s the best high MPG vehicle readily available. Additionally, the quality is far superior than anything I’ve seen in recent years from Detroit.

    One last tidbit, my money says the Volt will not be readily available (to average Americans) until 2012. And the price, I’m guessing it’ll be over 40K. Wait, GM is about to get a serious influx of money. Just maybe, with a little smoke and mirrors, thye will use it to help offset the cost of the Volt. Just wait, and wait, and wait,……….

  • steved28

    Um Phil, guess what, all of our money goes to Iraq. Yours too.

  • sean t

    Agree w/ you Prius Owner.
    To the Big 3: Just produce cars Americans want and you won’t have enough supply for demand.
    Yeah, I remember “Product Guru” Bob said Prius is just a PR stunt from Toyota. It’s good that he ate the humble pie.
    Americans drive good american cars, not craps.

  • Samie

    Proactive government is a good thing. Nice to see the Prez support bipartisan legislation. The only scary thing is where is the money coming from. We always complain about using government resources to help industries but this is a sound investment.

    As for GM products man in the last few years they really have gotten good. Long long ago growing up in the Midwest I remember all the Buick’s, Olds, Chevy’s and Pontiacs that guess what were the same pieces of junk. Some years you could have added the Cadillac logo to the same car engineering ideas of GM. Times have changed and I agree with Bryce that GM is going to put out some really good cars in the next few years.

  • Gerald Shields

    This was yet another throwaway to companies who aren’t making the cars that Americans want to drive. However, there was little choice as both John McCain and Barack Obama supported this. If Michigan gets in the tank for either then good for either. However, I would like to see more help go to companies like Aptera, Telsa, Phoenix Motorcars and others.

  • dale

    I see no guarantee that the money has to be/will be spent inside the borders of this country, did I miss something?

  • Bryce

    yea, toyota made quality cars relative to their competitors……in like the 90s. Their interiors are crap now and reports from edmunds to kelley blue book decry their lack of long term durability and quality. Get a Honda or a Chevy, and you won’t be disapointed. (most of you won’t agree with me, but then again, what do I care, you are the one stuck with the boring refrigerator on wheels) Please find me an exciting Toyota……I am waiting….

  • Pablo

    It is OK if the money is “… to retool plants to build more advanced technology vehicles…”.

    What is not OK is that Detroit already had a lot of money from the large vehicle profit and what they did with that money?

    One of the things they did is they spent money for TV advertisement to manipulate the public to desire this ugly SUVs and then Detroit was used to say “but that is what the people want”. They could have developed and advertised vehicles that are more sustainable and really better for the entire society; in other words they have first signal system instead of wisdom.

  • Bubba Nicholson

    GM, Ford, and Chrylser haven’t paid twenty-five billion dollars in federal taxes in their entire history of operations. When they lose money, they pay no taxes at all. That should be subsidy enough.
    Insulating the big three from market forces is unlikely to be in the nation’s best interest. The sad thing is that newer innovators, much smaller companies like Aptera, Fisker, Think, and Tesla Motors, will be placed at a competitive disadvantage.

  • Anony mouse

    The bill… provides $10 million to hire outside consultants to help them write the rules. That process could take “six to 18 months or more…”

    Our auto industry may not deserve it, but something has to be done. What I fail to understand is this: why can’t Congress find a way to get it done more quickly? $10 million just to help write the rules? 6-18 months… Or more? Ridiculous. Let’s just make sure that those rules include verifiable limits on CEO compensation. Overpay your CEO? You don’t qualify for the loan, plain and simple.

  • hybridman2

    Sorry guys, rewarding old school ivy league executives with $25 Billion for their incompetence is just like throwing your money away.

    Earlier posts point to Tesla motors (I agree!). Holy cow! Think what they could have done with a portion of that. I bet with $1 billion, they could have done more in five years than the Big Three COMBINED will do with this cash.

    More quick payoffs to friends in high places, sorry guys this will NOT spur anything but another 30 years of sluggish research trying to figure out what picky Americans want.

    The shame here is that I love America. I love what it stands for, We have the ability and capability of untold breakthroughs and scientific advances beyond comprehension.

    We absolutely have the ability to build the best electrics and hybrids in the world. But the power structure will not allow it or are too dumb to see it. Either way, until they wise up or get out of the way, Toyota, Honda, and all the rest will leave us eating their dust.

    It’s simple economics. Give the people what they want – they will beat down your doors to buy it. Try to foist your own concept of what they want, you go broke.

    Say good-bye to that $25 Billion. Can anyone tell me if Chrysler ever paid back there loan from several decades ago?

    Bob
    Hybrid Technology Blog

  • Baltimore Prius Owner

    Bryce,

    My boring refrigerator (2005 Prius) is getting a consistent 50.2 mpg and my wife’s fridge (2008 Prius) a respectable 48+ mpg. I think that is pretty exciting. What other car (that is readily available) does better? I’m waiting………

    Both cars have all the bells and whistles so I rarely need to remove my hands from the wheel while driving. As far as durability and quality goes (for all cars), I believe a lot has to do with how it is driven and cared for.

  • Bryce

    The Insight is going to smoke the Prius my friend, and the Volt won’t be far behind. Both of which are much less “fridge-esque.” Just go check it out on jalopnik, the photoes of the Insight just were revealed.

  • Baltimore Prius Owner

    Bryce,

    I appreciate the friendly banter. I checked out the pictures as you requested. The car looks great but if you look at the shot taken from the front corner looking back, it reeks Prius. Due to the Prius’ low CD, most small cars will eventually gravitate to this shape (or some variation). BTW – the heading states it’s still a concept. As far as the Volt goes, (it should be called a Watt until it’s actually produced) GM already admitted it will be difficult to keep the price under 30K. They are leaning more towards 40K. How many will sell during the recession we are about to enter (which will probably continue for 2-3 years)?

  • sean t

    Hey Bryce,
    Why don’t you compare the new Insight against the new Prius? The Prius is more than 5 yo and new Insight hasn’t been born yet. If you look at the old Insight, it’s so ugly. Never compare a 25 yo girl and a 60 yo woman. OK?
    What excites me from my car is where I’ve been, not some funky interior.
    Honda make good cars too but the facts remain that they didn’t sell very well: Insight, hybrid Accord, etc. They will improve, that’s competition.

  • Bryce

    I figure with a Volt, if someone is one of the early adaptors, they are paying a good chunk for R and D. It does get payed back though given that good ole Gubment…lol….is offering a $7500 tax credit for it and the thing will basically use no gas for you and me. After some time though, it will get even cheaper. For now though, best option might be Insight for those people with lower incomes. I however don’t see all cars looking the same as some silly little egg. Eventually, battery tech will get advanced enough that drag will be insignificant in the eyes of consumers because it won’t effect the fuel efficiency enough for them to care. (who cares whether it is 100 mpg or 95 mpg…..both are phenomenal) Tech like Li-ion and eestor super-caps can make this possible hopefully and as they are adapted more widely, they will hopefully get cheaper. : )

  • Warren Peace

    This auto manufacturer bailout loan crap makes me not want to vote. YES, it’s a bailout and a risk. The

    risk is, they will probably use the money unwisely just like before and not make a profit. Please tell

    me, how do pay back a loan without profit? And who made the calculated risk to do this? The big three

    auto mfrs should be allowed to fold. I highly believe the UNION is the main cause of their failure.

    Think about it. Why should a person with no college education, some don’t even have High Scool ed, make

    $29/hr for mounting hardware on hardware? Tires, seats etc… I have seen people “Stage” parts like screws

    and washers and gaskets and push buttons that get paid over $24/hr. Give me a break. No wonder they are

    losing money. They have to support the morons in their work force. A high scool student can do this for

    federal min wage!
    Most everything is automated and the unhealthy stuff is done by robots. That’s ridiculous. If one were

    to vistt one of their plants and audit this you will see it’s true. I have been in manufacturing for 10

    years. Positions get a pay increas because of tenure? WTF is that. After 5 years your still an idiot

    manual robot doing the same thing you got paid for when it was minimum wage! The big three should fold

    and the American people should not have to suffer through their reign of OPEC Support terror.
    DROP THE UNION! Or beteer yet, shut down the plant and reopen WITHOUT THE UNION! Sure, promote “Buy

    American”. I’ll spend my money on some good ol Amercian fun like go see a Baseball game and scarff down

    8 hotdogs and a pitcher of beer before I spend a boatload of money on an american car just to help

    support the afformentioned idiots employed there.
    Let’s take a look at this PHEV incentive that was passed also. To take advantage of this incentive, the

    vehicle you purchase must have soo much battery in it, can’t remember the specs but it was 3x more than

    any current foreign hybrid uses. Ironically if you look at any vehicles that can qualify, only the Chevy

    Volt and other US hybrid wannabe vehicles can qualify. Why? Because they are soo inefficient they

    require that much battery to run. So basically these US autos can not sell themselves and the big 3 need

    the govt to try and make the deal sweeter. For this reason I will never purchase a US big 3 vehicle

    again. The American people CAN survive even if the big 3 auto are gone. Need a car? There’s others to

    choose from? Lose your job because the plant failed to foresee the coming inevitable world change and

    they blindly charged on building Bradley Tank SUV’s? No problem, other auto manufacturers exist here in

    the US and when competition is gone from the big 3, guess what, manufacturing increases elsewhere in the

    US. Incentives for this PHEV bill should go to the vehicles that ARE PHEV. That should be the criterea.

    Then the consumers can decide WHAT PHEV they want to buy. So, guess what, they will most likely not buy

    a Chevy Volt and I highly recommend against the volt. This vehicle as well as any other attempts for the

    big 3 to sell as a hybrid / PHEV is just like their predecessors. They were hogs on gas back then, and

    in this generation they are hogs on batteries! Nothing has changed and they learned nothing. Tell me

    again why we are giving these huge loans to the same people that enticed people and sold Americans these

    poor excuses for a vehicle? I hope they all go under. This will open the doors to the small

    entrepreneurs like the “AC Propulsion”, “Phoenix Motors and “Hybrid Technologies” or “Black Bay

    Technologies”. Don’t get me wrong, the Volt is an outstanding concept. I just don’t agree with their

    business practices therefore they will never get my bussiness again or support.
    Basically IF the big 3 took what “Hybrid Technologies” is doing and refined the process, expand their

    facility, buy them out and ensure product reliability to “Their” standard then I believe the big 3 can

    make a come back. Think about it. This little comapny, Hybrid Technologies, takes already built ICE

    vehicles and convert them to 100% Electric in about 4 days. You get a range of 100+ miles. Good for

    commute and for soccer practices and runs to the grocery store, run to fast food for the 3 kids and get

    a beer. That is a perfect idea. So there, I just retooled the big three in less than an hour, my bill is

    $50Billion please.
    Of course this will not happen because Detroit has this “It wasn’t my idea so I wont bother with it”

    persona. Sure they’ll probably get the loan. How’s it feel to be left out in the cold for those

    Americans who lost their homes to bad loans? Govt will bail big auto but leave Americans to fend for

    themselves and at the same time pay for this friggin mess. Yes, it is true that “We weren’t pushing

    these larger vehicles, we were just building what our customers wanted,” Mulally said….” (Quote from:

    http://afp.google.com/article/ALeqM5h4EahO3VBl2HqNDP58DrifgZ_RlQ) but you continued and did nothing to

    “Adapt” to the market, Just like the dinosaurs, and guess what, the Asteroid of OPEC hit and you cant

    “Adapt”! Hey Detroit, “Retool THIS!”, bastards.

  • Bryce

    hmm……..

    Suit yourself. Competitors will get the tax credit when they produce cars that qualify for it….which means they have to actually produce some cars with electricity in it. Once an automaker offers us consumers an electric vehicle, then they qualify. Until then, silly little companies like Toyota need to go back to the drawing board and make me an electric car.

  • Anonymous

    Bryce, I think you’re missung the above’s point. It looks like the auto industry has the Government by the nards, hence their approval of this massive loan to re-tool. Also, the goon mentions how the ammount of battery is required. I checked on the Prius and it uses only 1.2 KW.h or something like that worth of batteries as opposed to 4.5KW/h for the Volt. If you don’t give a crap about how much energy / efficiency then YOU probably wont care for any of the vehicles offered anyway. And why would battery capacity even be a requirement? So basically what you are really saying is that in order for the already efficient hybrid or PHEV’s to qual, they have do design in inefficiencies to compete? What stupid concept. We all know adding more batteries is going to require more energy to move the additional weight of the vehicle, or do you? You stupid moron!

  • Bryce

    lol…..so u think……less batteries are a good idea….

    well, okey dokey

    I will be driving along using no gas with a $7500 check in my hands and you can drive your gas burner

  • Anonymous

    Nope. I think that the criteria made for this tax credit was just to help boost sales to a poorly efficient vehicle, aka the Volt.
    Kudos to you if you drive a more efficient vehicle but if ita a Volt then you’re just supporting the conversion from a gas HOG to a battery HOG.
    I personally drive an EV conversion.

  • doubledgedsword

    Your both right. However, I think development should be done on 100% Electric. We already know hybrid works great. Now we need to take it up a notch above the foreign cars. They don’t have any plans for an EV yet, at least Toyota and Honda don’t.
    That other guy I think makes a good point on the small bunesses doing the conversions. Other than the attitude the idea seems fairly viable.

  • Moderator

    Take a look at this for all you “By American” idiots…
    http://www.businessweek.com/magazine/content/08_37/b4099060491065.htm?chan=autos_autos+–+lifestyle+subindex+page_top+stories

    Sure, buy American so your “American” comapny can invest your $$$ on products that really work and sell the elsewhere because you want big Trucks/SUV’s, according to Ford CEO.

    Talk about a slap in the face for the American people.

  • AP

    hybridman2,

    Yes, Chrysler paid back every bit of its “bailout.”

    With interest.

    Ahead of schedule.

    The US government made money on it.

  • IsawNothingFromTheProfit

    “The US government made money on it.”
    Hmm…..
    Strange, I don’t ever recall the USSA Govt repay the tax payers money with the interest collected. Did you?….I didn’t think so.
    Yes it is true it was paid back but the dynamaics are much differen’t. Back then Oil prices and Car Sales. Note, there is/was back then no mention of Hybrid or global warming as an issue.
    NOW, there’s Oil, Global Warming, competition on Hybrid vehicles and a push for “Greener” products and push for energy efficiency. All of which puts the 3 at the bottom of the barrell. Why don’t you go out and Buy one of the American cars that’s 40K (Volt) and support your failing car company. The US Car business all came up from small companies. It’s time for a change and I hope the small companies that offer Electric/Hybrid/PHEV or even conversions come up to rise in glory.

  • Bryce

    why would the govt pay us for interest on a loan??? lol

    battery hog…..lol….ok, I though this was hybridcars.com. Home of electric cars right? with batteries in them…..right? Maybe I am at the wrong place. Maybe I am on exxon mobil’s website right now. My mistake mr. anonymous.

  • Question

    I have a question. Is the Volt really a “Hybrid”. I see it as a 100% Electric propulsion or are my 4 eyes decieving me? The internal combustion engine is never part of the drive train is it? From what I read it’s basically an elctric generator under the hood.

  • Bryce

    Essentially you are right. The combustion engine never actually drives the car, it just generates electricity at low RPMs. It is a Range Extended Electric Vehicle. For the most part, most folks wouldn’t use any gas at all.