Congress explores multiple avenues of aid for Detroit 3

  • 23-Oct-2008 03:50 EDT
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Among possible actions by the U.S. federal government is a broader tax credit program for cars fueled by compressed natural gas (CNG), such as this Honda Civic GX.

Congress rushed to provide two important incentives to the auto industry in early October, and more lifelines are probably on the way when Democrats and Republicans return to Washington, D.C. Legislators could toss additional buoys as early as November, when the House and Senate return for a lame-duck session. Help from the federal government could take one or more of several forms: taking a direct equity stake in General Motors Corp., Ford Motor Co., or Chrysler LLC; offering the automakers loans directly from the Federal Reserve; increasing the amount of low-interest loans Congress approved in early October; or tossing additional auto purchase tax incentives to consumers.

Detroit’s dire straits forced Congress to essentially reverse course on providing the $7.5 billion necessary to ensure the full $25 billion in low-interest loans that Congress had authorized as part of the 2007 energy bill. After hemming and hawing through the summer and into September, House and Senate leaders, worried about Detroit getting toasted by the economic meltdown, quickly approved the $25 billion, which can be used for retooling factories to manufacture "advanced technology" vehicles. In addition, a few days later, Congress tossed in a new consumer tax incentive for buyers of all-electric vehicles, some of which will be manufactured in plants equipped with funds from the new loan program. That proposal, too, had languished through the 2007-2008 session before being suddenly sped to passage at the end of September.

To qualify for the loans from the new Advanced Technology Vehicles Manufacturing Incentive Program (ATVMIP), a company has to produce automobiles whose fuel efficiency is 25% better than its less-efficient twin. General Motors, according to spokesman Greg Martin, sees its Lordstown, OH, plant as a "likely candidate." To be manufactured there is the Chevrolet Cruze, which will be at least 25% more fuel efficient than the Chevy Cobalt now produced there. The Cruze will use a six-speed transmission and a small, turbocharged engine for better fuel efficiency. Loans will also be available to GM for the Detroit Hamtramack plant, where the extended-range electric Chevy Volt probably will be assembled.

The bill instructs the U.S. Department of Energy to, within 60 days of passage, write rules explaining what information must be included in an application for funds. It will be up to Congress to decide how quickly loans are made available.

Some of the loans made by the ATVMIP will go to plants making plug-in electric vehicles. No one knows how much the Volt and its extended-range electric competitors will cost. Clearly they will carry a price premium over conventional models. That is where the new consumer tax credits come in. The $700 billion rescue package Congress passed the first week of October—formally called the Emergency Economic Stabilization Act (ECSA)—included a provision giving consumers who purchase an electric vehicle with a battery pack of at least 4 kW·h a $4168 credit. With a 16-kW·h battery pack, the Volt would qualify for the maximum $7500 credit. General Motors has said it would offer the Volt in 2010, and Chrysler gave dealers information on three electric vehicles—a Dodge sports car, Jeep Wrangler, and Chrysler Town & Country—one of which the company says will also be introduced for the 2010 model year.

Congress previously approved a consumer tax credit for hybrids. That was in the 2005 Energy Policy Act. The maximum credit was $3400, and it only applied to the first 60,000 cars sold by any one manufacturer. Both of those caps limited its utility. Toyota quickly ran through its available credits, leading to criticism from the auto companies. Congress apparently learned a lesson from that. In the bailout bill, the credit would phase out after a total of 250,000 vehicles are sold in a calendar year.

Congress’s next step may be to provide an incentive for automobiles running on natural gas. Rep. Rahm Emanuel (D-IL), the No. 3 Democrat in the House, introduced a bill in July that would provide a range of tax benefits to automakers to manufacture cars, to fueling stations to install pumps, and to consumers to purchase CNG-fueled cars, of which today there is only the Honda Civic GX; the company sells 500 to 1000 of them annually, according to John German, Manager of Environmental and Energy Analysis, American Honda. The GX already qualifies for an alternative-fuels consumer tax credit, which is 50% of the incremental cost of a vehicle over the conventional version. The Emanuel bill would increase that to 100%.

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