Automakers Are Seeking Billions From Uncle Sam

Car LotThe meteoric rise of gasoline prices, particularly since last year – has unequivocally marked a crucial if not a destructive period for the U.S automobile industry. With gasoline prices over $4 a gallon on average basis nationwide only couple of months ago ; consumers owning fuel guzzling SUVs and pickup trucks wished they had vehicles that were much less expensive to operate. This aspect led to a soaring demand for fuel efficient cars such as Toyota’s Prius hybrid and BMW’s MINI Cooper. The effect of it : a nosediving U.S auto industry. GM and Ford, in the 2Q’08 alone – reported a loss of more than $24 billion. According to analyst estimates, U.S. auto sales may drop to a 15-year low this year and fall even more in fiscal ’09.

Based on several reports, with the latest one coming from Bloomberg, General Motors, (GM) Ford Motor Co. (F), Chrysler LLC and U.S. auto-parts makers have approached Uncle Sam for help in the form of $50 billion in loans, double their initial request.

The U.S. automakers and the suppliers, as the U.S market adjusts from its high-horsepower diet to more fuel efficient vehicles – are asking the Congress to appropriate $3.75 billion needed to back $25 billion in U.S. loans approved in last year’s energy bill while adding an additional $25 billion in new loans over subsequent years at interest rates as low as 4.5%. The money, if granted, could come in the form of loan guarantees.

The industry, notes Bloomberg – is also seeking fewer restrictions in terms of how the funds are going to be used.

Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan, which oversees $22 billion in assets, including GM and Ford bonds, said : “Next year is going to be a make-or-break year in terms of survival. Any help like these government loans would be a huge boost.”

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About Ron Haruni 1068 Articles
Ron Haruni is the Co-Founder & Editor in Chief of Wall Street Pit.

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