Ener-GM Bail... I Mean Energy Bill

According to Bloomberg and following an $8.7B loss at Ford and a $15.5B loss at GM, Representative John Dingell (from Michigan) proposes $25B in government loans to:

Convert General Motors Corp., Ford Motor Co. and Chrysler LLC factories to build alternative-fuel vehicles.

Why? Will it help transition the U.S. into a new era of renewable energy sources. Nope, per Mr. Dingell...

"The sudden rise in gas prices, the subprime mortgage induced credit market tightening, across the board commodity price pressures, and regulatory demand for more fuel efficient vehicles have led to a sudden economic disruption of unprecedented proportion for the domestic auto industry."

So, Mr. John Dingell wants to funnel $25B of taxpayer money earmarked for energy investments from the Energy Independence and Security Act into three auto companies that are bleeding cash and located in his voting district (Michigan) because they failed to create a product as good as their competition and are struggling in a slowing economy? Back to Mr. Dingell....

``It is essential for the department to undertake this effort with urgency,'' wrote Dingell, a Democrat and chairman of the House Energy and Commerce Committee. ``Providing the domestic automobile industry with targeted and timely assistance will help stimulate the entire economy."

So now that it's clear WHY he is proposing a "bail out" (hint... NOT the energy bill), lets take a look below at what $25B is relatively speaking. Well, it's roughly the size of:

• Ford and GM's COMBINED SECOND QUARTER LOSSES
• The Market Cap of ALL THREE COMPANIES the bill is trying to "bail out"

But, what's the rush?

The loans were authorized in last year's energy bill, and the guidelines were supposed to be written within a year of its December passage, Representative John Dingell said yesterday in a letter to U.S. Department of Energy Secretary Samuel Bodman.

With the last second nature of this request and its clear conflicting purpose, the loan must be cheap for taxpayers.... right?

The rules call for loans for as long as 25 years with an interest rate set at the cost of funds to the Department of Treasury for obligations of comparable maturity, according to the text of the legislation. The loans can cover as much as 30 percent of the cost for assembly plants, component production and some engineering.

GM unsecured debt due in 25 years yields 12.94 percentage points over comparable government debt. That's $129.4 million annually over the cost of government debt in additional interest for each $1 billion.

25 * 129.4M = $3.23B / year if the loans are paid back in full

Source: Bloomberg