Nov 6, 2008

Department of Energy issues interim rules for $25 billion loan fund usage

This round of funding to go exclusively toward production of more fuel-efficient vehicles

The CEOs of GM, Chrysler and Ford plus UAW president Ron Gettelfinger are to meet with House Speaker Nancy Pelosi today to discuss a new round of loans to help keep them above water. As they do so, the Department of Energy has issued interim rules for the use of the already-approved $25 billion loan package earmarked for the construction of more fuel-efficient vehicles.

By revealing the interim rules this week, the DOE is roughly three weeks ahead of Congress's schedule, which allows until the end of November to get the details drafted, reports The Detroit News. The early arrival is likely due at least in part to the lobbying of carmakers eager to get any influx of cash they can.

"We're pleased that the DOE shares our sense of urgency and is moving ahead quickly with the rules," said GM spokesman Greg Martin today. "We're looking forward to putting this money to good use as fast as we can to introduce energy-saving products."

And that's precisely what they'll have to do with the money. Up to 80% of the cost of a high-tech fuel-efficient vehicle's project costs can be financed with the loan money, at a payback period of 25 years at an interest rate around 4%. But to get that loan, the carmakers must issue a security interest in all property the funds are used to purchase or acquire. That provision may be waived by the Energy Secretary, but it's standard practice in nearly every sector of the finance industry.

The funding can be used for both new and old plants, though preference will be given to re-equipping plants 20 years or older to produce the greener cars. Eligible projects include "re-equipping, expanding or establishing a manufacturing facility in the U.S. to produce qualifying advanced technology vehicles, or qualifying components" among other, more technical, functions.

Vehicles built with the loan money must be at least 25% more efficient than required by federal law, effectively ruling out most SUV and truck plants, but many large sedans, luxury cars and performance cars as well.

“Issuance of this interim final rule opens the process for automakers and component manufacturers to immediately apply for government funding under the Advanced Technology Vehicles Manufacturing Incentive Program," said Secretary of Energy Samuel Bodman. The first of these funds could possibly even be issued by the end of the year, though an early 2009 start is more likely.

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