Federal Loans for America Auto Manufacturers
December 10, 2008
The automotive industry legislation (H.R. 7321) being considered by the House this week provides bridge loans to the “big three” U.S. auto makers – General Motors, Ford, and Chrysler – to help them avoid bankruptcy. The measure limits compensation and other perquisites for executives of companies receiving loans, and imposes government oversight of the companies’ restructuring activities. The bill also contains provisions unrelated to the auto industry rescue plan. Below is an analysis of the latest provisions and costs of the bill language.
- What the Bill Does. The measure provides $14 billion in Federal bridge loans to the “big three” U.S. automotive manufacturers (a final estimate is still being developed by the Congressional Budget Office [CBO]). Loans are for 7 years or more, at 5-percent interest for the first 5 years and 9 percent thereafter. The bill also directs the President to name a designee to oversee implementation of the loan program and restructuring plans for the auto industry, and regularly report to Congress.
- Cost of the Legislation. The Congressional Budget Office [CBO] has not completed a formal cost estimate for the bill. Under the Federal Credit Reform Act, Congress must appropriate a subsidy amount to cover, in today’s dollars, the net long-term cost of providing such loans. The legislation draws from $7.5 billion that Congress already has appropriated for the Department of Energy’s Advanced Vehicle Manufacturing Program, and specifies the following:
- The bill appropriates “such sums . . . as are necessary” to support the subsidy cost of the bridge loan. A sum of $7 billion is redirected from the Advanced Vehicle Manufacturing Program to cover the subsidy cost of the bridge loan. It is not clear whether this amount will be sufficient to accommodate these loan costs.
- A remaining total of $500 million is reserved for the Advanced Vehicle Manufacturing Program.
- The legislation also authorizes such appropriations as are necessary to replenish the Advanced Vehicle Manufacturing Loan Program.
- The bill includes a Federal guarantee on qualified transit leasing arrangements, and a cost-of-living adjustment for Federal judges, both of which will increase total spending.
Read the full report here.