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Thursday, September 25, 2008

Congress Approves $25 Billion in Loans to US Auto Industry

WASHINGTON — The U.S. House of Representatives on Wednesday passed a funding bill that includes federal guarantees of up to $25 billion in loans to the struggling auto industry. The low-interest loans are designed to help automakers and suppliers retool to build more fuel-efficient vehicles.

The U.S. Senate may take up the bill on Thursday, and President Bush is expected to sign it. Michigan lawmakers are expected to push for another phase of loans for the auto industry that would add $25 billion more. "The industry's case has been helped by the fact that Michigan and Ohio, the two states most dependent on the car industry, are key swing states in the November 4 presidential election," said the Financial Times on Thursday.

The money is not expected to become available to the auto industry until early next year, after the energy department has written regulations detailing such things as conditions for repayment. The automotive loans are separate from the proposed $700 billion bailout for the banking sector. The auto loans are estimated to cost taxpayers $7.5 billion.

In an interesting footnote, the funding bill that includes the federal loan guarantees for the auto industry restricts benefits to plants that have been in operation for at least 20 years, effectively excluding most foreign automakers.

Detroit didn't fully get its way with the federal loan guarantees. Automakers failed to convince lawmakers to ease terms that restrict loans to projects for vehicles that improve fuel efficiency by 25 percent over comparable models.

What this means to you: Don't think of this as a free bailout, because the loans to Detroit automakers must be repaid. — Anita Lienert, Correspondent