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Stabilization: A More Efficient Auto Industry

Center for American Progress on the auto loan question

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Contact: Madeline Meth
Phone: 202.741.6277

Washington, DC – The auto industry is suffering from an extended, steep sales slump, and it requires immediate stabilization. Currently General Motors Corp., Ford Motor Co., and Chrysler can apply for direct loans from the $25 billion Congress appropriated to help auto companies retool their plants to make vehicles that are 25 percent more fuel efficient.

But more direct measures are clearly needed. The three U.S. auto companies believe that these retooling loan funds are inadequate to address their dire straits. They want an additional $25 billion “bridge” loan under the Troubled Assets Relief Program created by the Emergency Economic Stabilization Act.
“The federal government should grant this loan request,” said Bracken Hendricks, senior fellow at the Center for American Progress. “The auto industry is a bedrock of the economy, with ‘one in 10 American jobs related to auto manufacturing.’ Its survival is essential for the future of advanced clean vehicle and energy manufacturing. What’s more, this extra help is imperative to preserve jobs.”
“The loans must disallow excessive executive compensation,” said Daniel J. Weiss, a senior fellow at CAP. “The auto companies must fulfill their commitments to provide both health care and retirement security for their employees and retirees. And  the auto companies should also embrace — not resist —  the transition to less polluting vehicles, beginning with the California motor vehicle greenhouse gas emission standards.   If they continue their opposition, auto companies will continue down the path that got them in this mess in the first place.  ” 
Treasury Secretary Henry Paulson seems to recognize the importance of helping the car companies through their current financial difficulties. He told Congress that he may use part of the $700 billion financial rescue package to help companies making auto loans package and sell those loans to institutional investors in the secondary market.
The bridge loans to auto companies would stabilize them and prevent their collapse.  The incoming administration can then begin to focus on the inclusion of clean energy measures in packages to achieve economic stimulus, recovery, and growth.

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