Auto retooling loan rules released

David Shepardson / Detroit News Washington Bureau

WASHINGTON — The U.S. Department of Energy unveiled rules to oversee its $25 billion auto loan retooling program late Wednesday, which could allow automakers and suppliers to win loans before year’s end.

However, senior government officials said during a conference call with reporters that it was "doubtful" that loans could be issued before Dec. 31, but possible. "We are prepared to act on anything we get immediately if it is a good quality application," an official said on the call.

The rules are fairly restrictive; don’t apply for past investments; and require that automakers show they are financially viable. Additionally, they will have to spend the money on future projects, rather than use the money for immediate cash needs.

Detroit’s Big Three CEOs and UAW President Ron Gettelfinger plan to meet with House Speaker Nancy Pelosi, D-Calif., tomorrow to say that the energy loans won’t solve the current cash crunch and that an additional $25 billion in immediate "bridge financing" is needed to keep them afloat. Automakers face the worst market they’ve seen in decades and are burning through cash at an alarming rate. General Motors Corp. reportedly is spending more than $1 billion a month on its operations.

Automakers had hoped the Energy Department loans would have quickly helped offset some of their costs to meet increased fuel efficiency requirements imposed by Congress last year.

"We’re pleased that the DOE shares our sense of urgency and is moving ahead quickly with the rules," GM spokesman Greg Martin said Wednesday. "We’re looking forward to putting this money to good use as fast as we can to introduce energy-saving products."The rules allow automakers to borrow funds for up to 80 percent of an advanced technology vehicle project’s cost for up to 25 years. Automakers would get a loan of roughly 4 percent for the term of the loan — a move that could save them up to $100 million per $1 billion borrowed. They can seek a five-year deferral of repayment of principal, but not on the interest, according to the regulation.

Ford Motor Co. spokesman Mike Moran said the company hadn’t reviewed the rule.

"We’re hopeful that some of our fuel efficient product plans are going to be eligible to meet the criteria," he said.

The loans will be awarded in stages with the first deadline on Dec. 31.

Automakers must show that they are financially viable and show that they have a "net present value that is positive" and that they have "financial projections demonstrating the applicant’s solvency through the period of time the loan is outstanding." They must also offer a first-lien or security interest in all property acquired with the funds, but that could be waived by the Energy Secretary.

The rule is written broadly enough that new factories might be eligible. The projects include "re-equipping, expanding or establishing a manufacturing facility in the United States to produce qualifying advanced technology vehicles, or qualifying components" along with "engineering integration performed in the United States."

The rule gives priority to plants that are 20 years or older. Money from the loan program could be used to reopen a shuttered factory.

The vehicles built must be at least 25 percent more fuel efficient than required by law. It also requires that at least $2.5 billion of the loans be set aside for automakers and suppliers with 500 or fewer employees.

The Energy Department would be able to audit "from time to time" the books of any automaker who received a loan.

The director of the program, Lachlan Seward, a Treasury official who headed the Chrysler loan board in the early 1980s, plans to brief members of Congress tomorrow on the program.