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Chevy Volt's unveiling sparks questions about financing

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Tuesday's unveiling of the Chevrolet Volt electric hybrid car was supposed to be a celebration of new technology, the birth of a new class of automobile. Instead, the crowd at General Motors Corp.'s Renaissance Center was buzzing over who was going to pay for it: GM or American taxpayers?

GM revealed the much-hyped vehicle at an event celebrating the automaker's centennial. Immediately afterward, company executives faced a barrage of questions about whether some of the $25 billion in low-interest loans the industry is urging Congress to fund would be used to subsidize the Volt's development and production.

At the same time, GM executives called for federal and local incentives to boost the Volt program.

The loans "certainly would help us finance the vehicle," said Frederick Henderson, president of GM. "This is exactly the kind of vehicle that was contemplated when the money was put into the bill," he added, referring to last year's Energy Security and Independence Act.

That law called for higher fuel economy standards and federally guaranteed loans to help offset the cost of complying with the mandate. The loan guarantees were never appropriated, however, and gained attention this summer only when financially beleaguered automakers began pressing lawmakers to fund the guarantees.

Executives at GM, Ford Motor Co. and Chrysler have said the loans are vital to delivering on the new fuel-economy standards, which require a fleetwide average of 35 miles per gallon by 2020. GM Chairman and Chief Executive Rick Wagoner made the case for the loans before a Senate committee last week.

Critics of the loans have dubbed them a bailout that favors domestic automakers over foreign ones and that puts regulatory burdens faced by private industry on the shoulders of the American public.

"When the government gets in the business of backing industry, I think you have problems," said Jack Nerad, executive market analyst for Kelley Blue Book.

In the wake of the taxpayer-funded takeovers of Freddie Mac and Fannie Mae and a lifeline for insurance giant American International Group Inc., the auto industry's request comes at a time when public patience for such support is being considerably stretched.

A report from the Congressional Budget Office on Monday indicated that guaranteeing the loans would cost as much as $7.5 billion, double the original estimate.

After presenting the Volt to a standing-room-only audience, GM's Wagoner said he was asking Congress for only $25 billion in loan guarantees to the industry. That may be a sign the automakers are tempering their stance -- just two weeks ago, company executives said they were hoping for $50 billion in loans. "I think that $25 billion is a fair amount," Wagoner said Tuesday.

The loans were designated for carmakers and their suppliers for factory retooling and other projects that would lead to at least a 25% boost in fuel economy. Producing a new vehicle can cost $1 billion or more.

In the Volt, GM has the most visible appeal for loan funding of the three major U.S. automakers. The car will rely on a lithium-ion battery to give it a range of up to 40 miles on electricity alone, and has a gasoline-powered generator that can power it a further 360 miles. The Volt isn't due to go into production at the GM plant in Hamtramck, Mich., until late 2010.

In today's credit environment, unsecured loans would cost GM "in the 15% to 20% interest range," Henderson said. Federally backed loans could be had for 5% or less.

That makes them extremely appealing to GM and its Detroit peers, all of which have seen sales plummet. Overall sales in the U.S. are down 11.2% through August; last month, GM sales fell 20% compared with a year earlier, while Ford was down 26% and Chrysler declined 34%.

Besides loans, GM is planning to ask Congress, state and local governments for a "whole list of vehicle incentives and infrastructure incentives" to help cut the Volt's cost, said Britta Gross, GM's manager for hydrogen and electrical infrastructure commercialization.

Chief on the wish list would be a federal tax rebate for Volt purchasers, she said, pointing out that buyers of the Toyota Prius hybrid were eligible for a $3,150 rebate for a period. GM may also ask local governments for sales tax breaks and help installing public recharging stations.

GM executives have said the Volt could cost close to $40,000, although no official price has been set.

"Fifteen thousand dollars would go a long way, but I think it's a little optimistic," Gross said. "We think $7,500 per car is a great start."

David Cole, director of the nonprofit Center for Automotive Research, defended government help for programs such as the Volt. "This is very expensive stuff," he said.

ken.bensinger@latimes.com

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