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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.

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Then there's the part of the rule that includes the phrase "financially viable." Under the DoE rules, to qualify for a loan, automakers or parts manufacturers have to demonstrate that they won't need any more federal money to complete the project. They also have to demonstrate a "reasonable prospect" that they can repay interest and principal on the loans when they come due.

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Applicants have to submit documents proving their liquidity, statements from their lenders that say they're not behind on any other loans, and – here's the kicker – "financial projections demonstrating the applicant's solvency through the period of time that the loan is outstanding."

That will be tough for the automakers to show, unless they're counting on paying back the cash before they get it. GM posted a $2.5 billion quarterly loss on Friday and warned it may run out of money by year's end without government aid. Ford is a little better off, but still struggling. Chrysler? It's privately held, so its finances are opaque.

If this rule is any guide, the Bush administration is going to be unwilling to just throw money at the automakers and hope things get better. Secretary of the Treasury Henry Paulson expressed something of that sentiment on Nov. 12, when he answered a reporter's question about possible automaker aid by saying "any solution has got to be leading to long-term viability."

It's true that regulations, as opposed to law, can be changed by an incoming administration. But as far as the auto companies and their cash flow are concerned, it appears that next January might as well be 2025.

So Democratic leaders are expected to take up the issue when they return to Washington for a postelection session next week. Auto industry lobbyists have pressed Speaker of the House Nancy Pelosi and Senate majority leader Harry Reid for an immediate $25 billion loan to keep firms operating, followed by a separate $25 billion to help cover future healthcare obligations for retirees and their dependents.

"We're in a situation where there's a great unknown about what will happen," Sen. Debbie Stabenow (D) of Michigan said on Nov. 12. "And [there's] a great concern that at least one of the companies will find themselves in a situation where they cannot make it until Jan. 20," when Presdent-elect Obama will be inaugurated.