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GM chief faces skepticism on auto loan
WASHINGTON — General Motors Corp.’s top executive was on Capitol Hill Friday urging Congress to back $25 billion in low-cost government loans to help the auto industry build more fuel-efficient vehicles, but he faced skepticism from some legislators and the White House.
GM chairman and CEO Rick Wagoner denied that automakers were seeking a bailout as some critics have claimed, and urged Congress to “very quickly” approve the loan package.
“It’s certainly in the interest of everybody to get the funding done,” Wagoner said, calling the loans “tremendously helpful” to the company’s future. “We’re signed up to do what we committed to do as an industry and hope the $25 billion is funded.”
“I’m not here today … asking for any bailouts,” he told members of Congress.
Automakers have slightly shifted tactics, saying they don’t need the money to avoid bankruptcy, but rather Congress needs to live up to its end of the deal when it created the program by including it in the energy bill passed in December, but not funding it. They’ve also moved away from asking for $50 billion in loans.
“There’s a strong case,” said Sen. Carl Levin, D-Detroit. “There was a recognition you had to have support in order to achieve” the fuel efficiency increases. “This was part of a package.”
The December 2007 energy bill authorized up to $25 billion over five years in direct loans for retooling auto plants to build advanced technology vehicles. But Congress didn’t provide any money to fund the program. The government-issued loans would be at interest rates between 4 percent and 5 percent, which would save automakers more than $100 million per $1 billion in borrowing costs because they all have sub-investment-grade credit ratings and can’t get those favorable rates. The government could also defer repayment for up to five years and make it payable over 25 years.
Congress has to approve at least $3.75 billion against the risk of default for the $25 billion, but the Congressional Budget Office is in the process of revising the estimated cost higher.
Automakers are seeking changes in the law to make it easier to spend the money, including on projects that don’t improve fuel economy by at least 25 percent as specified in the energy bill.
Energy Secretary Samuel Bodman said Friday that the Energy Department isn’t likely to finish drafting the rules to oversee the loans until the end of the year — meaning it could be months longer before any money is awarded and dispersed.
Defending GM’s strategy
Wagoner rejected suggestions that GM caused its own woes by focusing too much on trucks and SUVs. “I think’s it silly to say we should be punished for having done the best trucks,” he said. “All manufacturers have been hit by this radical change in the marketplace.” He also reminded Congress that GM has provided significant benefits for U.S. workers. “We’ve spent $103 billion over the last 15 years paying for pension and health care,” he said.
But not everyone was convinced.
Sen. Bill Nelson, D-Fla., who voted for the 1979 bailout of Chrysler as a member of the U.S. House, said he had problems with Congress coming “to the financial rescue” of automakers in the face of years of opposition to fuel economy increases. “You all are going to come to us with some rescue package and ask us to rescue you,” Nelson said, adding that it was hard to support the loans “when each year that I have been in the Senate, Detroit has opposed us.”
Wagoner argued that automakers don’t need to face stricter fuel efficiency increases to get the money as some environmental groups have demanded.
Sen. Majority Leader Harry Reid, D-Nev., vowed to work to get the $25 billion in funding by year’s end.
Wall Street analysts have suggested that the $25 billion would reduce the odds of a bankruptcy filing. Earlier Friday, Ford president and CEO Alan Mulally told CNBC he was optimistic the package would pass.
The White House said it still had concerns about the loans.
White House spokesman Tony Fratto told reporters that Congress should be “very careful” before approving the loans.
“Obviously, we want to be very, very careful about the government’s role with private enterprise out there,” he said. “There are lots of industries that are dealing with challenging economic conditions, and it’s always important to be very cautious about the federal government’s role.”
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