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Barclays says US rules could limit auto loan access

Thu, Nov 6 2008, 21:20 GMT
http://www.afxnews.com

DETROIT, Nov 6 (Reuters) - The ability of U.S. automakers to access an already approved package of $25 billion in federal loans may be limited by the rules proposed by the Department of Energy, Barclays Capital said on Thursday.

The low-interest loans can only be extended to "financially viable" applicants who must prove they have a "reasonable prospect" of repaying the loan, according to the rules published by the Energy Department on Wednesday night regarding participation in the program.

Under the rules, the government will lend up to 80 percent of an eligible project's cost and successful applicants can get the requested funding within the current quarter.

But cash-strapped U.S. automakers, particularly General Motors Corp, may find it difficult to tap into the program at a time when they are arguing the case for federal assistance to survive a deep industry downturn, Barclays Capital analyst Brian Johnson said.

"The current provision on financial viability seems to box GM into a regulatory trap, in our view," Johnson said in a research note.

"As a result, we believe that additional bailout revenues will be needed to meet GM's needs," Johnson said.

The U.S. Congress approved $25 billion in low-interest loans in September for automakers and suppliers to help them meet new federal fuel-efficiency requirements by retooling plants.

Ford Motor Co, which borrowed more than $23 billion in 2006 by pledging all of its assets including its blue oval logo, may have an easier time accessing the loans, given its stronger liquidity, Johnson said.

Assuming GM and Ford will meet the requirements, GM can borrow up to $4.5 billion in 2009 and Ford can borrow $2.8 billion, Johnson said.

Industry executives and Congressional Democrats are discussing another $25 billion loans that would have few, if any strings attached, saying federal aid is needed to ride out the downturn that has pushed U.S. auto sales to the lowest level in 25 years.

(Reporting by Soyoung Kim; Editing by Tim Dobbyn) Keywords: AUTOS/LOANS

(soyoung.kim@thomsonreuters.com; Reuters Messaging: soyoung.kim.reuters.com@reuters.net; +1 313 967 1903)

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