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Why $25 billion bailout may not help strapped automakers

The Big Three are in such bad shape that they may not even qualify for the loans Congress approved in September.

By Staff writer of The Christian Science Monitor / November 14, 2008


Struggling US automakers have lots of reasons to be making the rounds in Washington, begging for more aid. Their business is colder than their hometown Detroit Lions, for one thing. (The Lions are 0 and 9, if you didn't know.) News reports about the industry often include the words "impending" and "bankruptcy." Their stock prices? Don't even ask.

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But here's one thing they don't mention: It's possible they want more money partly because they can't qualify for the $25 billion in loans to develop more fuel-efficient vehicles that Congress approved this September.

Yes, that's how bad things have gotten. The Big Three, or one or two of them, anyway, may no longer be eligible for their own bailout.

Let's rewind a bit here. This fall, Congress voted that $25 billion in loans on the theory that automakers and suppliers deserved a government boost to help them develop products that would meet higher mileage requirements and lessen US dependence on imported oil.

Of course, as New York Times columnist Tom Friedman pointed out on Nov. 12, the government has never had to subsidize Apple to build innovative stuff that customers actually want, so why should we do it for GM? But let's just set that opinion aside for the moment.

The Department of Energy is going to oversee this loan program, and it raced to set up the regulations governing the program so that cash could begin moving as soon as possible. OK, maybe "raced" isn't exactly the word, but this is Washington, and the DoE got it out the door in record time. The interim final rule for the Advanced Technology Vehicles Manufacturing Incentive Program was published in the Federal Register on Nov. 12.

Normally, that kind of thing takes a year. Anyway, the rules for the program are eye-opening. To qualify, advanced technology vehicle projects must hold out the promise of a 125 percent increase in fuel economy over the average mileage of vehicles with similar attributes. But the baseline for this mileage measurement isn't this year's models. It's vehicles from 2005.

In doling out the money, the DoE says it reserves the right to set priorities based on which technologies seem most promising. That's something the auto companies didn't favor, as they don't want the government involved in "picking winners," according to their comments on the regulation.