Analyst: Gov’t auto loans could reduce bankruptcy risks

If Congress gives $25 billion or more in low-cost loans to the auto industry, the money could reduce the bankruptcy risk for some or all of the Detroit Three automakers, according to a JPMorgan Chase & Co. analyst.

There have been strong signs in recent weeks that automakers may receive some government aid, said analyst Himanshu Patel in a research note released today.

Automakers — including Ford Motor Co., General Motors Corp. and Chrysler LLC, known collectively as the Detroit Three — have been lobbying legislators to appropriate $25 billion in loans that Congress authorized in last year’s energy bill. The bill set aggressive fuel-efficiency standards and created a loan program to help automakers develop and build vehicles and components with higher fuel economy.

Now, the automakers are asking for an additional $25 billion and looser restrictions on how the money is used, according to several media reports. Congress returns today for a shortened session before the November presidential election, and the auto companies are expected to aggressively lobby for the loan program. They want to secure the money before this session ends, according to reports.

At a congerence last month, GM Chief Financial Officer Ray Young was “far less dismissive of the chances of such aid coming through than what we could typically expect” from a Detroit Three executive, Patel’s note said. Executives “more commonly express frustration over Washington’s auto politics.”

And the loans will get support from politicians because Michigan, Ohio and Pennsylvania are swing states in the presidential election, Patel said.

“While the amount and timing of any potential aid remains a major unknown at this time, we suspect the spirit behind supporting funding of the advanced automobile technology loans (as those specified in the energy bill) is to provide a helping hand to financially-strapped Detroit,” according to the note. “As such, if the bill is eventually funded, the potential dollars involved could materially reduce near-term bankruptcy risk at some/all of the (Detroit Three).”

GM and Ford have posted losses of several billion dollars this year as consumers have shifted from pickups and sport utility vehicles to cars. Chrysler, privately owned by Cerberus Capital Management LP, does not regularly report its financial details.

Automakers have insisted that the government loans would not be a bailout.

Sen. Claire McCaskill, D-Mo., said last week at a press conference in Fenton that she supports the loans, but she was doubtful any of the money would be appropriated before a new Congress takes office next year.