car_guy

Government Approves $25B Low Cost Loan Package for Auto Industry

Another example of how the Seeking Alpha contibutors know absolutely nothing about the Auto industry they love to complain about. These loans were tied to a 40% INCREASE in Corporate Average Fuel Economy which requires Auto companies to SELL a combination of cars that average 35 MPG. They can make all of the small cars they want, although domestics and imports are counted seperately so Chevy's Aveo doesn't help the Impalla, but if customers want to buy larger vehicles because gas becomes cheap again, the Auto companies have to pay the government a huge penalty. The $25B loan package does even come close to offsetting the $35B cost the government estimates the Auto companies will pay to achieve the new government regulations.

CAFE is far more socialistic than any government loan package will ever be. It penalizes Auto companies for selling a vehicle mix the government doesn't like but consumers actually prefer. It is also the root cause of the truck/SUV fad because the CAFE requirements for these vehicles were much lower than cars so Auto companies could make the big trucks/suvs customers wanted without paying a CAFE penalty.

The loans also come with huge requirements. They will be given out on a plant by plant basis and each plant must be at least 20 years old (Honda, Toyota, and Nissan plants are elligable) and the loan must be used for tooling for a new vehicle that gets 25% better mpg than the previous vehicle the plant produced.

If the government treated the banks and wall street like they treat the Auto companies they would have raised the capitalization rates 20 or 30% when the credit crisis hit instead of pumping cash into the system, opening the discount window, and eventualy offering to buy all of the bad debt. That is the definition of a bailout, not the loans to the Auto companies.