Article

Helping Detroit Go Green

Low-interest direct loans to automakers in the continuing resolution to fund the government would help produce more fuel-efficient vehicles, writes Daniel J. Weiss.

Workers install a windshield on a Cadillac at the General Motors Corp. Lansing Grand River assembly plant in Lansing, MI. Direct loans from the continuing resolution could help automakers modernize plants to produce more fuel-efficient cars. (AP/Al Goldis)
Workers install a windshield on a Cadillac at the General Motors Corp. Lansing Grand River assembly plant in Lansing, MI. Direct loans from the continuing resolution could help automakers modernize plants to produce more fuel-efficient cars. (AP/Al Goldis)

The continuing resolution to fund the federal government for fiscal year 2009 includes funding for low-interest direct loans to automakers and suppliers. These loans are critical to preserving our domestic manufacturing base, and would assist automakers with the costs of retooling their facilities to produce significantly more fuel-efficient vehicles and components.

The Energy Security and Independence Act of 2007 authorizes such direct loans. This provision was designed as an incentive for these companies to accelerate the transformation of their U.S. factories to produce the next generation of fuel-efficient cars and trucks. At the same time, Congress must ensure that these new vehicles meet environmental targets, and that companies who receive the loans are held accountable should they fail to meet them.

As America faces a deepening financial crisis and record energy prices, it must be a top priority for Congress to stabilize our job base and our economic competitiveness. These circumstances increase the challenge to the auto industry as they retool to produce more fuel-efficient cars. Slackening demand for new cars due to a soft economy and plunging sales of less fuel-efficient light trucks and SUVs due to record gasoline prices are also automaker concerns. The recent tight credit market and the auto companies’ financial and job losses complicate their efforts to borrow funds to make the investments necessary to address these circumstances.

Investment in the rapid conversion of the U.S. auto industry to produce highly fuel-efficient and alternative fuel vehicles could also provide a boost to our global competitiveness, near-term stimulative investments, and long-term reductions in oil consumption and greenhouse gas pollution. But any loan program should have strong guarantees that both the environmental performance goals and domestic retooling and workforce investments are met as a condition of the loans.

Senators John McCain and Barack Obama both publicly stated that as president they would grant a Clean Air Act waiver to California, allowing the state to adopt standards to reduce greenhouse gases by 30 percent from motor vehicles. Sixteen states would also adopt the California program. Under such circumstances, the direct loans provided by Sec. 136 would help auto companies meet these aggressive GHG reduction targets. If, on the other hand, the California waiver remains unissued, or is blocked in some other fashion, then Congress should reconsider whether the direct loans are appropriate.

At another time in our nation’s history when the auto industry faced similarly historic challenges, the federal government offered loan guarantees to Chrysler. While it was controversial at the time, the public benefits in preserving jobs and communities were substantial. In addition, the program was structured to ensure that taxpayers not only bore the risk, but also eventually shared the financial benefits of Chrysler’s recovery. Appropriating funds today for loans to automakers and suppliers to retool for more fuel-efficient and more competitive vehicles that move America off its oil dependence is also smart policy.

The record oil and gasoline prices of 2008, combined with more evidence of global warming, reinforce the urgency to slash oil use to protect our economy, security, and environment. The most important steps toward achieving these goals are to dramatically improve motor vehicle fuel economy, while developing the next generation of super-efficient vehicles such as plug-in hybrid electric vehicles that get 100 miles per gallon or more. Congress should fully fund the direct loans under the Advanced Technology Vehicles Manufacturing Incentive Program to assist auto companies and their suppliers with this essential transition.

Special thanks to Bracken Hendricks.

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Authors

Daniel J. Weiss

Senior Fellow

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