Although most of the hoopla surrounding the Energy Independence and Security Act of 2007 involved increased CAFE standards, the act also included a provision to make Federal loans more accessible to automakers. Now that small cars are in high demand, securing such loans has become a ‘top priority’ as domestic automakers are scrambling to boost their small car production.
Even before the recent economic downturn hit, the domestic automakers struggled to secure low interest loans as their credit ratings were in the basement. Since $4 gas hit the use, those ratings have dropped through the floor, making it nearly impossible to raise the capital necessary to convert truck and SUV plants to produce more efficient vehicles.
However, the Federal loan section of the Energy Independence and Security Act of 2007 could be the automakers’ life raft. The provision calls for as much as $25 billion to be doled out in loans, with an interest rate of just 5 percent or less – that compared to the double-digit interest rates that domestic automakers are now facing. That means the federally run program could save the automakers hundreds of millions – if not billions – in interest payments each year.
The only catch is that the automakers have to use the loans to build vehicles that get at least 25 percent better fuel economy than the average of similar vehicles, all while meeting emissions standards, according to Automotive News.
However, the loans are not reserved solely for the domestic automakers. The loans extend to foreign automakers in the U.S. as well as U.S.-based suppliers. It remains unclear if foreign automakers will take advantage of the loans, but most suppliers likely will. That means all automakers in the U.S.—domestic and foreign — should benefit from the program as they share the same supplier base.
