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US loan to bail out carmakers

2008-09-30 10:04

By John Crawley

Chrysler, Ford, GM

Washington - US government loans for carmakers envision cutting edge innovation for more fuel efficient vehicles, but the credit, and a separate package of consumer tax breaks, are more likely to finance new approaches for familiar designs and for options already moving forward.

The loans of up to $25 billion that could be available early next year are meant to help struggling Detroit-based General Motors Corp, Ford Motor Co and Chrysler LLC meet rising federal fuel efficiency standards.

The companies say they need the help because they are already struggling with disastrous sales of their core sport utilities and pickups and a credit outlook that seems to worsen with the metastasizing Wall Street crisis.

They also trail Japanese rivals in developing the fuel efficient vehicles that American consumers are demanding.

25% more fuel efficient

The primary criterion in the legislation authorising the loans requires that any project receiving funds yield 25% more fuel efficiency than federal standards. Energy Department rules being drafted on how the money can be spent could impose additional requirements.

Fuel efficiency targets under the law will not begin to rise noticeably until the middle of the next decade. In the nearer term, cars and trucks must average about 25.5 miles per gallon by 2010. Regulators have proposed 28 mpg by 2011 and 29.6 in 2012.

"The standard of 25% is not a high bar," said David Friedman, research director at the Union of Concerned Scientists. "You don't need a huge modification of the engine to get 25%."

Some lawmakers and industry officials, who pushed for the loan assistance expected it to be finalised by Congress over the weekend and signed by President George W. Bush before October 1, have trumpeted the virtues of fuel cells and other futuristic options.

But most framed the help in the context of producing stronger and more reliable batteries for hybrids and electric cars.

"One day when that first 40 miles is all electric - the first commute won't use any gasoline at all. That's what we hope to get to," said Rep. Mike Rogers, a Michigan Republican.

Prius still leads

The most fuel efficient vehicle on the road today, according to the Environmental Protection Agency EPA.L, is the Prius hybrid made by Japan's Toyota Motor Corp. It gets 45 mpg in the city and 48 mpg on the highway.

GM is betting heavily on the Volt, a "plug-in" compact designed to go 40 miles on electricity before giving way to a small full powered engine to recharge the generator. It is due to roll off the production line in 2010.

GM chief executive Rick Wagoner hopes the Volt will qualify for government loans, which will partly cover development costs.

Chrysler hopes to bring one of three electric vehicles - a minivan, jeep or sports car - under development to market in 2010.

But high volume sales for vehicles using existing technology or in the pipeline is almost as crucial for reducing gasoline use as developing new ones at great expense and time.

"If we double sales of a hybrid model, the cumulative fuel savings is greater than doubling its fuel economy with no change in sales volume," says Robert Wimmer, a Toyota executive in Washington.

This is where the second piece of assistance now moving through Congress comes into play.

More assistance to come

The US House of Representatives and Senate have cleared separate tax measures that include consumer tax credits to buy plug-in vehicles.

The Senate proposal tops out at $7 500, while the House would extend $5 000. Congressional negotiators have to reconcile their differences, but they are expected to come to an agreement in the coming days.

Automakers are also taking more conventional routes to achieve greater efficiency.

Chrysler could seek assistance for investments already in the pipeline to build plants that produce parts for a more efficient V6 engine, if rules allow, the company's chief executive, Bob Nardelli said this week.

Ford plans to convert three existing North American truck and SUV plants to small car production. Ford is also adding four-cylinder engine capacity and expanding production of new EcoBoost engines and six-speed transmissions.

Ford has not said what current or future products it might submit for loans, but hopes some initiatives already in the works might meet the criteria, a spokesman said.

Friedman agrees that fuel savings can be achieved through conventional engines, better transmissions and even advanced tyres.

"Maybe all you need is to make the body better and you don't even need a huge modification for the engine," he added.


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