US House of Representatives approves $25-billion loan package for American auto industry

25 September 2008

The US House of Representatives has approved funding for a $25-billion loan programme aimed at aiding the auto industry to build more fuel-efficient vehicles. The aid programme was supported by both political parties on account of this being an election-year, and the issue is of significant importance in states like Michigan and Ohio, where a number of the automobiles are manufactured.

The $25-billion rescue seems pale in comparison to the $700-billion Wall Street bailout by the Bush administration (See: Bush's $700 billion bailout plan for banks faces Congress heat). Michigan lawmakers say they were preparing to ask for another $25 billion over the next three years.

However, critics of the loan package say it is little more than an exercise in futility.

In a statement, the National Taxpayers Union said that the loan deal sets a ''horrible precedent for companies in other sectors'' of the American economy. The union says that "If troubled firms seek revitalisation, they should restructure their businesses the way millions of families have had to restructure their budgets, rather than bellying up to Congress' trough."

GM, Ford and Chrysler executives had lobbied on Capitol Hill to fund the low-interest federal loans. They say that the aid package would help ''an important US industry'' which is struggling with the difficult economic conditions as they work to ''meet stricter miles-per-gallon rules mandated by Congress last year.''

Though the measures do not explicitly preclude foreign automakers, the loans are intended to help manufacturers transform their ageing factories to produce new generation vehicles. Most foreign auto companies, notably the Japanese and Koreans, do not have facilities in the US that are old enough to qualify for the aid package, effectively meaning that most of the $25 billion will end up in the pockets of the American automakers. Reports suggest that some of the loans would be available to suppliers to the auto industry.

Supporters of the loan programme for the auto industry insist that it is not a bailout package, and that the money would be repaid, citing a programme that provided $1.5 billion to Chrysler in 1980, though billed a bailout actually led to a $313-million profit to the US government.