Detroit bailout?

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With carmakers on the rocks, or approaching them fast, a hot topic is whether Washington would bail out a General Motors Corp. or a Ford Motor Co. should the shadow of bankruptcy fall upon them. Would either of the presidential candidates, John McCain or Barack Obama, come to their rescue?

Well, Detroit isn’t waiting for November to find out. In recent months, the industry has been quietly lobbying Congress to back $25 billion in low-interest loans for auto manufacturers and suppliers. Now the industry, along with the United Auto Workers union, is asking for $25 billion more, and it’s doing it with a lot more volume.

The original $25 billion loan package, which would cost the government an estimated $3.75 billion to guarantee, was written into the 2007 energy bill — the same one that imposed the new, more aggressive, fuel economy standards. The aim of the loan program was to help offset the estimated $100-billioncost of improving fuel efficiency in cars to 35 mpg by 2020. But that money has not yet been appropriated by Congress, and the Department of Energy has not yet written final rules on the loan program. Now the industry is amping up the pressure to get those things done.

With automakers reporting huge second-quarter losses — $15.5 billion for GM and $7.8 billion for Ford — Senate Democrats late last month proposed spending $900 million to back $6 billion of the $25 billion inloans to automakers; that proposal is set to come up for a vote next month. But the new plan being pushed by the industry would fully fund the already approved loan guarantees and provide $25 billion more over the next few years.

Complete details of the industry-backed plan should be unveiled after Labor Day, but early details suggest it would be a juicy deal: Interest on the loans would be about 4.5%, less than a third the rate that the credit-challenged carmakers can expect to get on the open market. Moreover, Congress would have the option of deferring all payments for up to five years. Likely backers come from the Michigan delegation, including Rep. John Dingell, a Democrat and chairman of the House Energy and Commerce Committee.

The car companies would use such loans to pay for expensive retooling of factories as they move to smaller, more fuel-efficient cars in coming years, as well as to develop new technology. The direct loan program requires that the money be applied for use only in plants that are at least 20 years old, according to a Ford spokesman. As a result, the most likely recipients would be American carmakers, although a few foreign companies have plants at least that old in the U.S. That has prompted criticism that the loan plan is a bailout aimed at only three companies.

‘This reflects companies that have a long-term commitment to manufacturing in the U.S.,’ said Bruce Andrews, vice president for government affairs at Ford. He points out that American automakers have never defaulted on a government loan. ‘It’s helpful for us to have access to capital for transformational changes we’re making here in the U.S.’

The Big Three have faced mounting liquidity concerns of late, with Moody’s and Fitch downgrading GM and Ford debt in the last two months based on concerns that they don’t have enough cash on hand. Lower-cost loans would be invaluable to the companies as they attempt to bring new, fuel-efficient models to market in coming years.

The candidates seem to be taking a shine to such a proposal. Obama has been a vocal supporter of loans to Detroit, prompting praise from the UAW this week.

McCain has been more reticent, saying in a June visit to a GM plant in Ohio: ‘Frankly, I just don’t see a scenario where the federal government would come in and bail out any industry in America today.”

But the stump does funny things to a man, and even McCain appears to be coming around, releasing a statement on Friday saying that he believes ‘we should fund [the loan program] and take action that will assist Detroit and its suppliers in making it through this difficult time of transition.”

So apparently, it’s unanimous. Nobody wants to preside over a death rattle from Detroit.

--Ken Bensinger