Carmakers Benefit From New Congressional $25 Billion Loan Program

July 8, 2009

An announcement is being made by the Obama administration that would offer more details regarding a $25 billion loan program that would help automakers like Ford Motors, Tesla Motors, and Nissan reorganize their factories to produce innovative vehicles. These companies would be among the first beneficiaries.

The announcement, given by Energy Secretary Steven Chu is meant to allay concerns made by members of Congress that have plagued the Energy Department for some time now. The call for expediting the awarding of loans under the program, which was first established in 2007 but not funded until fall of 2008, was made during a steep sales downturn for the United States auto industry.

These loans are intended to assist automakers in their efforts to revamp plants to produce new models that have at least 25% more fuel-efficiency than 2005 models.

Other companies have applied for funding among them, more than a hundred carmakers and auto-parts producers, including Delphi Corp, General Motors, as well as young innovators like XP Vehicles Inc, a California-based company focused on the development of battery/fuel cell hybrids. The purpose of much of the funding is to increase the development of electric-powered vehicles and other battery-technology improvements.

Each of the first beneficiary companies has issued various proposals for the use of their funds when the requests are officially approved.

In the case Ford, the car company has not made the details available publically. It has requested $5 billion from the Energy Department. There are suggestions that the money will be used to convert some North American truck and SUV factories into small-car plants.

Other uses that were outlined before Congress in December 2008 involve the use of the monies to produce new engines that utilize turbo-charging and direct injection to achieve 20% fuel savings over larger engines with similar performances. Six-speed transmissions, flex-fuel vehicles, and electric car models were also discussed.

Nissan submitted its application but the amount requested has yet to be disclosed. The loan would be used to by the company to upgrade its assembly plant in Tennessee as well as construct a new factory for battery production.

Tesla has applied for about $450 million in loans to finance its production of an electric-powered family sedan and for production of electric-vehicle components.

XP Vehicles is still awaiting approval for its application for financing, but it s confident that it will soon be confirmed.

Delphi, a major auto-parts supplier, also hasn’t received a final decision. According to John Anderson, director of the company’s corporate-affairs office in Washington, D.C., Delphi has notified that its loan application, which would include money to fund a variety of fuel-efficiency technologies, has already receive preliminary approval by the Energy Department.