Department Of Energy Establishes Auto Loan Rules

December 27, 2008

Recently, the US Department of Energy announced a set of temporary regulations that would help it manage its $25 billion auto loan program. This plan would allow automakers and supplies to obtain financing before the end of 2008. Yet, despite this ambitious timeframe, few high-ranking government officials foresee funds being made available prior to December 31.

These loans are meant to fund projects to help modernize car-manufacturing facilities so they will be able to produce high-fuel efficient vehicles. Some have pointed out the restrictive nature of the new regulations. Essentially, the carmakers must use the loan funds only on future development projects. They will not be allowed to use them to deal with immediate operational financing needs. Lastly, the company must demonstrate its continued financial viability.

The problem with the DOE’s plan has been summed up by its failure to address the immediate needs of automakers being crushed beneath the weight of the economic crisis. Thus, the Detroit Three and the UAW are both lobbying for $25 billion in “bridge financing” to keep the companies operational.

With operational costs imperiled by the worst auto market in decades, the big automakers are fighting to survive. They are looking to the Department of Energy to help them by providing the essential financing they need to offset costs and meet the required fuel efficiency standards that were imposed by Congressional verdict just the previous year.

The new regulations will allow automakers to borrow funds for up to 80% of an advanced automobile’s project cost for twenty-five years. The car companies would be able to apply for loans of about 4% for the term of the loan. The move could mean savings of up to $100 million per $1 billon borrowed. These loans will be given out in stages to meet the yearend deadline.