The U.S. auto parts industry asked the Bush administration Monday to set up a loan-guarantee plan for auto suppliers as part of the $700-billion financial bailout plan, as well as to speed $25 billion in loans for retooling.

The request from the Motor & Equipment Manufacturers Association means that the entirety of the U.S. auto industry — automakers, suppliers and dealers — has now asked for government help to survive the economic downturn.

In a letter to President George W. Bush, MEMA Chairman Charles Johnson said suppliers were facing “massive upheaval,” and noted that partsmakers are the largest employers in seven states: Indiana, Michigan, Kentucky, Missouri, Ohio, South Carolina and Tennessee.

MEMA, along with Detroit automakers, has been pressing the U.S. Department of Energy to move quickly on loaning $25 billion to the industry approved by Congress in late September. While Energy officials have said it could take 18 months for the money to reach the industry, industry officials say the administration has sped up the process, and hope to see some loans made early next year.

The association also asked the Treasury Department to set up a loan guarantee program, saying a lack of capital and access to commercial credit had driven layoffs in recent weeks.

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White House officials should push hard, using emergency measures if needed, to ensure that $25 billion in low-cost loans start flowing to U.S. automakers before the Bush administration leaves office, former Michigan Gov. John Engler said in a speech Monday at the Detroit Economic Club.

Engler, now president of the National Association of Manufacturers, said he was alarmed to hear that the money may not be released until mid-2009 or later.

Delays would be dangerous to the future of the automakers, Engler said, referring to dwindling cash reserves of General Motors and Ford Motor Co., whose stock prices fell sharply last week. The loans, approved by Congress to help automakers retool to build more fuel-efficient vehicles, were signed into law Sept. 30.

“The administration has an obligation to get the money to these companies,” Engler said, suggesting that White House Chief of Staff Joshua Bolten or other high-ranking officials get involved to expedite the process.

“They’re using all kinds of emergency powers at Treasury in the financial crisis,” he said, declaring that the auto loans are critically important, too.

Last week, U.S. Energy Secretary Samuel Bodman said his department would write a rule within 60 days regarding allocation of the auto loans, but said it could take another six to 18 months before the money is actually dispensed.

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GMAC Financial Services said Monday that it tightened its criteria for consumer automotive financing, citing the continued upheaval in the lending industry.

GMAC, the financing arm of General Motors Corp., said the changes include limiting purchases to contracts with a credit score of 700 or above and restricting contracts with higher advance rates and longer terms.

The moves come on the heels of GMAC’s decision last week to increase by 75 basis points the rate it charges dealers for providing non-incentivized consumer auto financing.

GMAC said the current market environment has made it harder and more expensive for it to obtain the funds it needs to make automotive loans. The changes are expected to remain in place until credit markets stabilize and accessibility improves, GMAC said.

GMAC said its wholesale automotive finance business is unaffected by Monday’s changes.

New York-based GMAC is controlled by Cerberus Capital Management, but GM still holds a 49 percent stake in the business.

GMAC, the finance arm of auto maker General Motors Corp. (GM), said it is implementing Monday “a more conservative purchase policy” for consumers. The lending unit will extend auto loans to borrowers with a credit score of 700 or higher. In addition, it will scale back longer-term loans, or those longer than 60 months, and demand higher down payments from borrowers.

The lending unit said it had also increased last week by 0.75 percentage point the standard rate it charges dealers for providing auto loans to consumers. This rate increase doesn’t include lending charges on loans related to special programs, such as 0% financing.

“It’s common to make rate adjustments,” said Gina Proia, a GMAC spokeswoman.

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The U.S. Department of Energy will meet a Congressional deadline for a temporary rule governing $25 billion in loans for the U.S. auto industry, but the money may not flow for some time, Energy Secretary Samuel Bodman said today.

The industry and Michigan lawmakers won the $25 billion in loans to help pay for fuel-efficient vehicles, although Wall Street analysts say the money could keep some of the companies solvent. On Monday, Fitch Ratings cut its view of Ford Motor Co.’s debt, saying the global credit crunch was increasing its cash burn.

Although the bill requires the agency to write a temporary rule within 60 days, the agency has said it could take between six to 18 months before loans could be made – a timeline that Michigan lawmakers have called unacceptable.

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President George W. Bush today signed a sprawling, $630-billion-plus stopgap spending bill that will keep the government running for the next 12 months and, among other things, provide automakers with $25 billion in taxpayer-subsidized loans.

The huge bill, approved by the House and the Senate last week, has been overshadowed by the financial crisis gripping the country.

The bill is dominated by a record $488 billion for the Pentagon, $40 billion for the Homeland Security Department and $73 billion for veterans’ programs and military base construction projects. It also lifts a quarter-century ban on oil drilling off the Atlantic and Pacific coasts.

The administration won approval of the military budget while Democrats wrested concessions from the White House on disaster aid, heating subsidies for the poor and smaller spending items.

Source:Freep.com

Most still get approved, but even prime-risk customers are having a harder time getting auto loans approved in the current credit crisis.

That’s according to CNW Marketing Research, which said that the share of auto loan applications that got final approval dropped for all three of the main credit-risk categories — prime, near-prime, and subprime.

“Even a prime customer is having a significantly harder time getting a loan approval. And those loans that are approved have to be submitted to more financial institutions,” said CNW President Art Spinella, in a Sept. 25 note.

In 2008, about 81 percent of prime-risk loan applications eventually got approved, down from about 91 percent in the year-ago period, from Jan. 1 to Sept. 20, CNW said. Near-prime approvals fell to 77 percent, from 86 percent.

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When a senator at a recent hearing asked General Motors Corp. Chairman Rick Wagoner whether she should wait for the price of the Chevrolet Volt to go down before buying one, Wagoner had a ready answer: “The good news is we’re going to subsidize your purchase.”

So will the American taxpayer.

With the approval of $25 billion in low-interest loans Saturday, the U.S. auto industry has won the help it urgently needs to rework its vehicles.

But the loans are one of several government aids — from research funds to consumer tax credits — that automakers will increasingly rely on to build the technology they need to survive.

The industry and its supporters say rising fuel economy standards, the drive to reduce consumption of foreign oil and increasing efforts by foreign countries to boost their industries will require ever closer ties between Detroit and Washington.

“For them to do what they need to do, we’re going to have to have a major government commitment,” said Sen. Carl Levin, D-Mich. “We have to change the way we look at industry in America.”

The $25 billion in direct federal loans, the largest federal aid ever offered to the U.S. auto industry, won final approval from Congress after a three-month industry blitz that included visits by top executives and some peeks at future technology, such as Chrysler LLC’s electric-vehicle concepts that were revealed publicly this week.

Industry officials say the loans will help them retool factories to build more efficient models, such as the Chevrolet Volt. Wall Street firms have estimated that the loans could also sharply reduce the cash needs of GM in 2009, and at Chrysler to a lesser degree. Michigan lawmakers have pledged to seek an additional $25 billion after the elections, citing the industry’s financial woes.

“This is an important first step to providing access to capital for important investments in the future at a time when the capital markets are distressed,” Ford Motor Co. officials said in a statement.

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A massive pile-up in the credit markets is causing serious congestion for new car buyers who want financing, according to industry observers. But some dealers say they’re still able to work out deals.

“Credit availability has been the number one issue in our industry for several months now,” said Mike Jackson, chief executive of AutoNation , the country’s largest auto dealership chain.

The inability to arrange suitable financing has killed the deal for a lot of customers in AutoNation’s 317 dealerships nationwide, Jackson said. He stressed that customers are still coming in, but they can’t get a loan they can afford on the vehicle they want.

Almost all auto dealers recently surveyed by the industry newspaper Automotive News said they were having a harder time finding loans for customers with poor credit. About 60 percent said they having more trouble getting financing even for customers with good credit.

During the housing boom, home equity loans were often used to finance car purchases. But the housing market collapse has put more pressure on auto financing, Jackson said.

“The issue with autos right now is that, essentially, we’re having our own credit crisis that’s brought on by the credit crisis,” said George Magliano, director of North American auto industry research for the consulting firm Global Insight.

At the same time, a general downturn in auto sales seems to be pulling against a tendency to raise interest rates for customers too much, said Richard Howse, senior director for automotive financing for industry consultants J.D. Power and Assoc.

“Rates are actually down from the first half of 2007 to the second half of 2008,” Howse said. But they have recently started to creep up, he noted.

Several auto dealers interviewed by CNNMoney.com said business is tough overall, but they can still get loans for customers who want them.

“With the volume of business down, they’re trying to put every deal together,” Tommy Brasher, owner of Brasher Motors in Weimar, Texas, said of his relationship with auto finance company GMAC.

GMAC, which provides financing to General Motors  dealerships and their customers, would not say how events in the financial markets have affected its business.

Keith Roberts, who owns Hoover Dodge in Charleston, S.C., said he wasn’t having any problems either, beyond the fact that customers simply aren’t as plentiful as they once were.

“What’s affected us more is the media and the media’s perception of what’s going on,” he said. Finding financing deals for customers isn’t a problem, according to Roberts. It’s getting them to buy a car – period. “People just aren’t spending money as they have in the past,” he said.

But the biggest financing problem financing dealers face right now is one brought on by auto dealers and auto financing companies themselves, said Tawny Arnaud, vice president of sales for Galpin Motors, a chain of nine dealerships in the Los Angeles area.

Many customers who want to trade in vehicles today are still paying off extra-long loans they arranged on their last car purchase, he said. Loans of long as or six years have become commonplace in the industry.

When customers try to buy another new car after three years they often have a vehicle that’s worth less than what they still owe on it. That makes financing the new vehicle difficult, or at least expensive, since the amount owed on the old car has to be wrapped into the new car payments.

That’s what’s making it harder to get affordable car loans for customers — not the credit crunch – Armaud said. “People really should be thinking in terms of short-term financing.”

There’s simply no way to predict what the most recent developments in the banking sector will mean for the auto industry in the long term, experts said.

“There’s no input in the econometric models to capture some of the outcomes we’ve seen over the last two weeks,” said Ford Motor Co.’s  top sales analyst, George Pipas.

“I think this is all new territory for everyone in terms of how long it will take to work through this credit crunch,” agreed Deborah Meyer, Chrysler LLC’s chief marketing officer.

One thing that experts agree is clear is that overall auto sales won’t get better soon, and they probably won’t start to come back before the end of 2010, they said.

“If we were in the 6th or 7th inning of the credit crisis, I’d say we’re going into extra innings,” AutoNation’s Jackson said.

For now, Tom Libby, an analyst with J.D. Power and Assoc., said he is still forecasting a very slight upturn in auto sales for next year. The company forecasts 14.2 million sales for this year, he said, and 14.3 million for next year.

“But we’re keeping the right to monitor that,” he said.

Source : CNN money

The auto lending industry jumped into the debate Tuesday over a $700-billion bailout for the U.S. financial market, warning that car loans could be choked off should lawmakers fail to restore the flow of money through Wall Street.

Lawmakers from both parties vented their anger over the problem Tuesday, while Bush administration officials warned that unless Congress acts, the U.S. credit markets could tumble into chaos and speed an economic recession.

Stock markets fell Tuesday after prospects for the original plan dimmed, but lawmakers said they understood the need to pass something, vowing that any bill will include more oversight, tougher rules for financial firms and help for people facing foreclosure or eviction.

“While Wall Street gets to sell their bad investments to the treasury, homeowners will still be saddled with mortgages they can’t afford,” said Sen. Richard Shelby, R-Ala.

“Wall Street bet that the government would rescue them if they got into trouble. That may be the bet that pays off.”

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