I know I said I’d be starting a Bailout Watch 2 series on Monday, but events have once again overtaken us. And to avoid confusion, I’ve decided to simply continue the orginal Bailout Watch series, as it’s all pretty much of a muchness: your tax money for GM, Ford and/or Chrysler. This morning, Barrons reports the inevitable: The General is looking to hit-up the U.S. Federal Reserve for a little walking around money. “How much the car producer would seek is unknown,” Barrons says. “but it needs $5 billion to meet its goal of completing a $15 billion liquidity program, much of which actually is coming from cost cuts.” So, can they do that? Of course they can! “Under the law, GM would pay a rate of interest that is higher than the top one charged to banks for cash advances. The Fed can lend to GM without demanding collateral if it gets the votes of five of its board members.” Check this from the Fed’s Discount Window Website: “In unusual and exigent circumstances, the Board of Governors may authorize a Reserve Bank to provide emergency credit to individuals, partnerships, and corporations that are not depository institutions.” Strangely, both this story and the GM  Chrysler merger non-deal rely on “two persons with first-hand knowledge of the situation.” Same two? Never mind. This one we believe.

Detroit’s movers and shakers have a chip on their shoulder larger than the Rock of Gibraltar. They feel besieged, besmirched and belittled by the feds and liberal elites. Of course, that was BEFORE the Beltway Boys lavished bailout bucks on Motown’s moaners to retool their factories to build better cars than their competitors. Detroit’s playing kissy-face with their former antagonists now, right? Wong. “Clearly, now that Washington is loaning Detroit auto makers $25 billion to begin repenting their evil ways, legislators will try to turn the fuel-economy screws tighter so they can limit the number of unhealthy vehicle choices General Motors, Ford and Chrysler are able to sell weak-willed consumers.” Well, duh! What part of CAFE doesn’t WardsAuto scribe Drew Winter not understand (other than, you know, the actual regulations)? The part where everyone does the same thing, apparently. “When I see pictures of them [Chevy Volt, Toyota Prius], I can’t tell them apart. It reminds me of Soviet-era central planning. Yes, all these cars further The State’s goals of reducing carbon emissions and consumption of foreign oil, but comrade, they look boring and not everyone can drive one… Forgive us for our decadent and unhealthy choices, oh wise members of the new Washington Automotive Politburo. Fast red convertibles and big utility vehicles are the opiate (or tobacco) of the people. But this still is America, where people should be allowed to buy what they want and auto makers should be allowed to make a few dollars off our human weakness. Pretend the profits are from something politicians like, such as casino gambling. This still is a capitalist society after all. At least, it still was at press time.” Wow.

As the Detroit News‘ auto jefe AND a regular reader of the free-market Mises Institute, it’s no surprise that Manny Lopez is ambivalent about Motown’s bailout bucks. In his latest column, Manny accuses the Germans of sour grapes. “Auto industry officials in Deutschland are calling the auto loan program a ‘distortion of competition’ and bastardization of the free market, among other things. And in the purest sense, it is.” So, column over, right? Wrong. Lopez proceeds to turn protectionism into a question of relativity, comparing the bailout to closed Asian markets (which are being opened, thanks to the WTO) and the province of Niedersachsen’s stake in VW (which is also in the process of being weakened by the EU). Besides, says Lopez, BMW and VW are getting local tax breaks for building plants stateside. From there, it’s but a short step to bailout apologia. “Certainly (the bailout) looks like it’s going to favor General Motors Corp., Ford Motor Co. and Chrysler LLC. They don’t pay big bucks to legislative lobbyists for nothing, after all.” Which is argument enough for Lopez to support a $40b bailout for European automakers. None of which makes any sense. Jesus Christ Manny, Man-up! Either that or whisper words of wisdom and let it be.

Now that the deed is done, now that your elected representatives have funded the Department of Energy’s low-interest auto industry loan program, The New York Times is closing the barn door behind $25b worth of bolted horse. “There are other, perhaps more pressing demands on the public purse than merely helping out General Motors, Ford and Chrysler: guaranteeing all Americans access to affordable health care, improving the nation’s schools, mending the country’s threadbare social safety net to help unemployed workers. The list could go on.” More relevantly, the Grey Lady views Detroit’s designs on the cash with considerable consternation. “Moreover, while the money is ostensibly meant to further the cause of fuel efficiency, we fear Detroit’s automakers will be tempted to put it to other uses. The Department of Energy, which is in charge of writing detailed criteria for car companies to get the loans, should include a provision for strict oversight of the program to ensure that the money is not diverted to other purposes.” Seconded. But the Times does itself no favors when it characterizes The Big 2.8 as “the gas-guzzling trio from Michigan.” And while their “plea” for a little transplant teat-sucking makes perfect sense (at least in their world), it’s not likely to fall on receptive ears in Dearborn (‘natch) or Main Street. To wit: “If it ever tries to expand the program — as some members of Congress have suggested — a good target would be some of those Japanese-owned automakers in the United States that actually have a record of successfully investing in fuel-efficient cars.” Again, how about we give end users a tax credit and let the free market sort this shit out?

Though we can’t do anything now to prevent the passage of the $25b industry loan package, there’s still plenty of scope for measuring results and demanding accountability. After all, as Danny Howes of the Detroit News puts it “Implicit in the federal loan package, it seems to me, is a message from Congress and their constituents: Get it right this time because there may not be a next time.” In his latest editorial, Howes qualifies his earlier bailout support with a call on the Detroit to get back to the business of being in business. Recent hybrid and electric hype coming out of Detroit “has the eerie feeling of a cranky heart patient running on a treadmill because he has to, not because he wants to,” reckons Howes. And when there’s a shortage of heart attack medication, such calls to action should be even more closely heeded. An S&P press release published in Automotive News (sub) claims that receiving $25b in low-interest loans has done nothing to boost the credit ratings of Detroit automakers. A full FAQ is published at S&P’s subscriber-only ratingsdirect.com website, but the argument’s broad strokes are that nobody knows how or when Detroit will actually get the federal loans. Until such time as the loans are approved and the checks clear, S&P sees no reason to elevate the credit ratings of domestic automakers, currently standing at (B-/Negative/–) for GM, (B-/Negative/–) for Ford Motor Co., and (CCC+/Negative/–) for Chrysler LLC.

Rest easy America, your government has appropriated $700b of your malaise-busting tax dollars to fix the economy… and fatten up a few pet projects. As Farago reports, auto loans were bundled into the “distressed assets” category, but that’s not the only handout the industry received just days after the passage of its own special bailout. The Detroit News reports that hidden away in the 451 pages of the “Extreme Bailout: Wall Street Edition” is nearly a billion dollars worth of consumer credits to buyers of plug-in hybrid electric vehicles (PHEVs). We’ve always preferred consumer-end stimulus to the production subsidies awarded last week, but apparently Detroit gets to have its pork and eat it too. And like the retooling loans, the tax credit seems tailor-made for Detroit. Under new rules, any PHEV with at least 4kw battery capacity would qualify for $4,168 credit, but (thanks to its serial-hybrid setup) the Volt’s high-capacity battery would make it qualify for the top passenger vehicle tax break of $7,500. Larger credits exist for vehicles over 10k pounds, but all credits expire after 250k qualifying units are built. With $7,500 off the top, state and federal production subsidies, and more hype than a David Blaine special, the Volt had better amount to something… other than a boondoggle.

Speaking to reporters at the Paris Auto Show, VW CEO Martin Winterkorn revealed that his company would seek a portion of the $25b in bailout loans recently passed into law. Automotive News (sub) reports that Winterkorn hopes his firms new Tennessee plant would qualify for loans. “We will raise our hand when the time comes,” said Winterkorn. But has Piech’s hatchet man had time to read the fine print between rounds of anti-Porsche pugilism? A quick look at Section 136 (g) of the Energy Independence Act of 2007 reveals that “The Secretary shall, in making awards or loans to those manufacturers that have existing facilities, give priority to those facilities that are oldest or have been in existence for at least 20 years.” It’s great that Mr Winterkorn would like his brand new plant to qualify for the loans, but he fails to understand that their rules have been written to exclude nearly everyone other than the Detroit 2.3. And with the regulatory rules still to be written (with help from Detroit lobbyists), the likelihood of VW getting a penny in government loans is only going to shrink.

Amidst all the noise about “troubled assets” and “toxic debts,” few commentators have noticed  that the bailout rescue package before Congress (again) includes provisions for the government to buy-up car loans gone bad. The Wall Street Journal, “In August, tight credit caused General Motors to lose sales of roughly 10,000 to 12,000 vehicles, the car maker said. When extrapolated across the entire U.S. industry, that was the equivalent of 40,000 lost sales, or about $1 billion in revenue.” Thus, the fed’s grand plan to pick-up big dollops of the bad paper so that car dealers can get back to the business of putting people into cars and trucks they can’t afford by writing more bad paper. Personally, I think people should only buy the vehicle they can pay cash for, but if the world agreed with me then the automotive market would probably crash and burn. Americans wouldn’t even accept a China-style system, where buyers have to put down 40 percent of a vehicle purchase price in cash. Regardless, if the bailout package passes this week, you can bet The Big 2.8 will be looking to push that money straight into its dealers’ hands.

Sadly this is not a story about how Ford has been doing reasonably well and actually wants to buy off debt with some cash it’s socked away. No, if Ford wants to live to fight for another bailout, it has little choice but to use cash to pay off $1.5b in debt that comes due tomorrow. “We expect them to use cash out of hand to pay those down,” said Mark Oline, a credit analyst at Fitch Ratings Co. in Chicago. “In the current environment we simply expect these sorts of debts to be paid off, not refinanced.” Not that paying off debt with more debt isn’t awesome, and Ford does still have access to an $11.5 billion revolving line of credit which it has yet to tap. But like the guy says, “in the current environment” is the operating term here. A billion bucks’ worth of debt that comes due tomorrow is owed by Ford Credit, which has a relatively high degree of flexibility for refinancing. So while Ford Motor has no choice but to cough up $500m in cash, Ford Credit could potentially refinance without reaching for its revolving credit line. Ford is also planning the sale of about $500m in new stock. According to Bloomberg, that money will be used to buy back bonds maturing before Jan. 1, 2012. Given that GM just had to tap into its own $3.4b revolving credit account, Ford’s decision to mortgage itself to the hilt prior to the credit meltdown now seems like an inspired business move.

Let’s face it: there was about as much chance of President Bush vetoing the $25b auto industry bailout package as, well, Bush vetoing anything. The guy has literally set a 200 year record for fewest vetoes. Then again, he may not have even known or cared that $7.5b of the $634b spending bill he signed yesterday was even for auto industry loans. Not to disparage the guy or anything, but blowing over $600b in a single sitting has got to be a little disorienting. Besides, there’s evidence that Bush’s advisers may at least have been split on the auto loans; a written statement released by the White House fails to make any mention of the auto loan provisions. But Bush was essentially signing a bailout of a different kind last night. The government needed the spending bill passed in order to keep the lights on in DC, and industry lobbyists were simply smart enough to get there handout tacked on to that must-pass legislation. It’s called the Potomac Shuffle, and it’s one of the few games Detroit plays with the best. In fact, lobbyists and well-owned representatives are already calling game-on for round two. The Detroit News reports that “Michigan lawmakers plan to return next year to seek another $25 billion in loans for 2009 and 2010, and more flexibility in how the funds can be used.” As we’ve been saying from the get go, once DC invests in Detroit it will have little choice but to continue feeding the yawning black hole that was once our domestic auto industry. In this sad story, the end is only the beginning.

Since the $25b bailout is a done deal, it’s tempting to think of the “debate” as a fait accompli. Not so. The Department of Energy (DOE) still has to meet with lobbyists study the bill and write-up the regs. Although RF reckons the DOE won’t be rushed (that much), Motown’s white hot for the green, encouraging bailout backers to fire-off warning salvos even before the President’s signature clears the cash. As Green Car Congress reports, Senate Energy & Natural Resources Committee chair Jeff Bingaman (D-NM) is pre-threatening his pals at the DOE.

I have been told there may be some confusion about the terms of the loans as the provision creating the loan program references the “activities” that are the subject of a grant program also authorized in the same section of EISA. The grant program is limited to 30 percent of the costs of a facility. This is a fairly typical cost share for grant programs. Some have raised a question as to whether this 30 percent cap should also apply to the loan program. That is not the way I read the language of the law and was certainly not our intent in writing the provision.

Moreover, I would argue that it would dramatically limit the effectiveness of the program as it would require companies to go to tight credit markets for 70 percent of their financing, precisely the problem we were seeking to remedy with the creation of the loan program. While I don’t expect the Department of Energy to take this limited view of the program, I wanted to go on record here to help alleviate any confusion that may exist. I look forward to working with the Department to aid them in getting this program up and running.

As we’ve just reported, the Senate’s OK’ed a big ass appropriations bill which included $25b low-interest federal loans for Detroit [via the Department of Energy, with an initial five-year payment holiday]. While the bill passed by a convincing margin, and the lame duck President is sure to sign it, the increasingly vociferous fiscal conservatives are starting to make themselves known. Automotive News [sub] reports the dissent. “Sen. Jeff Sessions, R-Ala., warned that loans to the industry could violate international trade agreements that restrict government subsidies for private businesses. Sen. Jon Kyl of Arizona, the Republican whip, said that features of the loan program are ‘eerily familiar’ to easy-credit practices among home lenders that led to the nation’s current financial crisis.” In a pre-written acceptance speech (’cause the suits are home for the weekend), GM highlighted the loans’ non-bailout, PC nature. “Congress clearly recognizes the need to move forward at this critical time to make available this source of capital for automakers and suppliers. Authorized nearly a year ago, these direct, federal loans will support advanced technology development and implementation and will help speed the transition to cleaner, more fuel-efficient vehicles.” As would a consumer credit for consumers who bought a fuel efficient vehicle from ANY automaker.

Congressional funding for the Department of Energy’s (DOE) $25b low-interest loans, designed to help Detroit retool 20-year-old (or older) factories to produce fuel-efficient automobiles, has just cleared the Senate. MSNBC reports that the $634b spending bill (which includes the provision) is now heading for President Bush’s signature, after passing the Senate by a margin of 72 to 12. Detroit’s lobbyists’ have little time or reason to rest or celebrate. The moribund new car market is feeding the flames of their cash conflagration right here, right now. The DOE’s “normal” timetable wouldn’t put the money in their mitts until 2010. Too late. As The Detroit News points out, presidential aspirant John McCain feels their pain. “McCain spokeswoman Sarah Lenti said the Arizona senator ‘is committed to a responsive and efficient  government. In circumstances in which it is straightforward to anticipate the startup of a new program, he would insist that work would begin in advance and be completed in a timely fashion.'” Wiggle much? Only as much as Barack Obama. “After the progress of the past week this is disappointing news from the Department of Energy,” Obama spokesman Brad Carroll said. “Barack Obama understands that these loans are essential for keeping auto jobs here in America, which is why he would do everything possible as president to expedite this process.”

We’ve asked this question before: what collateral can The Big 2.8 provide to secure their share of the $25b worth of federal low-interest loans offered by the Department of Energy? I mean, Uncle Sam IS going to ask for some sort of guarantee that your tax money won’t disappear down a rat hole, RIGHT? If so, what’s on the table? Ford has already mortgaged the company up to and including its logo. Aside from the Jeep brand, what’s Chrysler got that anyone wants? Minivan production for VW? As for GM, we now learn what The General had to sign over to draw-down the remaining $3.4b of its $4.5b credit facility with Citicorp and JPMorgan Chase. CFO.com reveals the list. “The collateral for the credit consists of North American accounts receivable and inventory of GM, Saturn Corp., and General Motors of Canada; plants, property, and equipment of General Motors of Canada; and 65 percent of the stock of the indirect subsidiary General Motors de Mexico.” Talk about a precedent… if GM continues mortgaging its foreign ops, a C11 will take down the whole schmeer.

It’s flip-flop week over at Automotive News. While Editor David Sedgwick pulls a Volt-face, publisher Keith Crain is flopping around the bailout issue with the grace of a freshly-landed steelhead. Just a short week ago, Crain took to his keyboard to pen a paean to the Detroit bailout. “Have the auto companies made bad decisions in the past three decades that have led them to this period of peril? Of course they have, and they continue to make bad decisions. But it is in the best interest of the United States to have a strong and viable domestic automobile industry.” This week, the AN strongman has a new take on bailouts, written under the headline “Somebody Should Just Say No.” In fairness, Crain hasn’t properly flip-flopped, he’s just being hypocritical. He may be the biggest backer of Detroit’s federal teat-nuzzling (“hoon”), but when it comes to Wall Street bailouts, the man is all principle. “Those Wall Street companies bought portfolios of bad home loans to make money,” growls Crain. “The companies are at risk because of their bad judgment, and they should take their losses.” In other words, America needs an auto manufacturing industry, but the financial centers that run the world economy we can give or take. “Let’s not jump into decisions that will increase the indebtedness of the American people,” says Crain, arguing that the auto-industry loans will definitely be paid back. And if “the mess on Wall Street is only a distraction from a thorough study of our manufacturing base,” why does Crain think the Wall Street bailout is getting top billing? Because Treasury Secretary Henry Paulson “made millions” on Wall Street and is “compromised.” As opposed to Keith Crain who never made a dime off America’s auto biz, and is as neutral and incorruptible as Solomon himself? Money-grubbing is never fun to watch, but this is just getting ugly.