The big auto industry loan package I mentioned the other day seems close to passing in Congress:
Key members of the U.S. Congress are confident a provision needed to trigger $25 billion in loans to automakers will become law within days ...
I haven't seen the full details, but this was helpful:
The government interest rate for the loans would be about 5 percent, providing about $100 million a year in savings for every $1 billion the companies received in loans. The companies have poor bond ratings, meaning they would only qualify for double-digit interest rates on the open market.
Doing some quick math, that's $100 million in saving for every $1 billion in loans, so with $25 billion in loans that's $2.5 billion in "savings"/subsidies!
And there may be more coming:
“We’ve got the best deal for the industry that we can,” said Rep. John Dingell, D-Dearborn. “I think we got that which they need to go forward.”
But, “we will be starting on the second $25 billion, which we’re going to have to get because the costs to the industry are going to be larger."
I still haven't seen a reaction from foreign car makers, but I'm eager to see what they have to say.
UDPATE:
German car makers are not happy about all of this:
The German auto industry attacked U.S. politicians on Thursday over plans to give $25 billion in low-interest loans to Detroit's crisis-stricken carmakers.
"We are opponents of subsidy contests," the head of the VDA automotive industry association, Matthias Wissmann, said during the IAA truck show in Hanover.
Speaking of the effect on foreign car makers, there was also this:
In an interesting footnote, the funding bill that includes the federal loan guarantees for the auto industry restricts benefits to plants that have been in operation for at least 20 years, effectively excluding most foreign automakers.
UPDATE II:
Some further details from the FT:
The continuing resolution provides funding for $7.5bn, which is the estimated subsidy on the loans - in other words, the cost to the government of providing them at well below market rates.
The loans will not take effect until the energy department has written detailed regulations dealing with, among other issues, which investments will qualify and conditions for repayment. Congress has directed the department to begin writing the regulations quickly and will provide any extra staff required to do so. One lobbyist said he hoped the regulations would be completed by early 2009.
All carmakers and suppliers with operations in the US are theoretically eligible. However, the energy bill restricts benefits to plants that have been in operation for at least 20 years, thereby excluding most foreign carmakers.
A Toyota spokesman said his company was agnostic on whether it derived any benefits. It has kept a low profile in the debate on the loans.
