Congressman Sander Levin

Auto Industry

Our auto industry is being forced to restructure during both the worst domestic recession in decades and a global financial crisis. These are difficult days for our families and communities with the news of additional plant closings and job loss.

Importance of the Domestic Auto Industry

My brother, Carl, and I like to say we have the auto industry in our blood. Most of us in Michigan understand instinctively that the domestic auto industry is a national industry that critical to our economy and national security. These last months have seen a growing recognition of this fact, and the vital necessity of a strong domestic auto industry is at the heart of federal efforts to help the industry restructure.

General Motors, Ford and Chrysler account for roughly 70 percent of U.S. auto production and support million jobs across all 50 states. The U.S. auto industry represents almost four percent of U.S. gross domestic product and 20% of all U.S. retail sales. It is among the largest purchasers of steel, rubber, paper and computer chips.

According to the Center for Automotive Research (CAR), if the GM and Chrysler bankruptcies prove unsuccessful, the U.S. economy could lose more than 1.3 million jobs by the end of 2009. This “worst case scenario” would reduce personal income by nearly $100 billion through 2010.

Maintaining a domestic technological and industrial capacity is not only vital for our economic prosperity, but also for our national security. The National Automotive Center (NAC) located at the Tank Automotive and Armaments Command in Warren serves as a catalyst to leverage government, industry and academia R&D investment with the goal of incorporating commercial technology into Army vehicles. The engineers at TARDEC and the National Automotive Center are working with the auto industry on critical research and development to reduce fuel consumption in the Army’s ground vehicles through electric propulsion and fuel cells, to create a mobile electrical grid, and to develop the use of advanced batteries, artificial intelligence and nanotechnology for the next generation of military vehicles.

Auto Industry Restructuring

The positive news is that after months of countering the arguments of those who felt the companies should just be allowed to fail, the federal government is now making a $50 billion commitment to GM and Chrysler’s survival.

In additional to the direct loans to the companies, the federal government has taken steps to ensure that consumers can get loans to buy cars and have confidence their warranties will be honored, that dealers can get loans to finance their inventories, and that suppliers can be assured they will get paid for their parts.

Consumer Credit and Warranties

The Obama Administration has injected $12.5 billion into GMAC and $1.5 billion into Chrysler Financial, and facilitated and agreement for GMAC to provide financing to the new Chrysler-Fiat Alliance’s customers and dealers to help ensure that there is adequate credit available to support new car purchases. This is in addition to programs at the Treasury and Federal Reserve to help make auto loans more available.

In addition, President Obama announced on March 30th that the federal government would guarantee the warranties of GM and Chrysler cars purchased during their restructuring so that consumers can be 100% confident that if they buy a car from either company their warranties will be honored.

Dealer Loans

The Small Business Administration announced on May 28th that it would begin to guarantee lines of credit to auto dealers to finance their inventory beginning July 1, 2009. The pilot program will be available to guarantee up to 75% of lines of credit between $500,000 and $2 million until September 30, 2010, at which time the SBA will decide whether to extend it.

Supplier Support Program

On March 19th, the Treasury Department announced a program to provide up to $5 billion in financing to the automotive supply base by guaranteeing payments owed by GM and Chrysler to critical parts suppliers. I believe that while this program has been an important step to stabilize the supply base, much more needs to be done to ensure that our auto industry emerges with an intact and vibrant supply base. The automotive supply industry is actually larger than automakers themselves, with thousands of employees in all 50 states.

Consumer Demand

Auto sales are at historic lows because the financial crisis has dried up consumer’s access to car loans and the overall economy has shaken their confidence that they can afford what is a family’s second largest purchase after their home. The House of Representatives approved legislation on June 8th to provide consumers with an incentive to recycle their older vehicles and replace them with new, cleaner, and more fuel efficient models. I am an original co-sponsor of H.R. 2751, the Consumer Assistance to Recycle and Save (CARS) Program and actively supported its passage. This proposal will support consumers, the auto industry, manufacturing jobs, and car dealerships by boosting sales during this difficult restructuring period. I am hopeful that it will be approved by the Senate and signed into law soon. For more information about how this program would work, click here.

Building the Vehicles of the Future

The domestic auto industry is also on the leading edge of advanced technologies like advanced battery production as it works to build the vehicles of the future. The federal government must be a strong partner to the domestic auto industry in this effort.

Retooling Loans

As part of the 2007 energy bill, Congress created the Advanced Technology Vehicles Manufacturing Incentive Program to provide loans to automakers and suppliers to encourage retooling of existing plants to produce the next generation of passenger vehicles.

Providing low cost loans will make it more economically feasible for U.S. auto manufacturers and parts suppliers to proceed with the retooling of their facilities by providing low-interest loans for the cost of retooling a domestic manufacturing facility to produce advanced technology vehicles (e.g., hybrids, plug-in hybrids, electric vehicles, advanced direct injection diesels, fuel cell vehicles) or their key components.

I helped lead the effort [link to Auto Retooling Stimulus Letter Final] to fund this important program last summer, and while a stop-gap spending bill enacted last year included funding to support $25 billion in Section 136 loans, the Department of Energy has already received applications well in excess of that amount.

To ensure that all eligible manufacturers have an opportunity to participate in this important program, I introduced legislation, H.R. 2150 to increase the amount of loans available to $50 billion. I’ve also written to the House Appropriations Committee [Link to Sec 136 FY10 Programmatic Letter] requesting funding for the additional loans.

Battery Grants

One of the essential technologies for hybrid, plug-in hybrid, and all-electric vehicles is advanced batteries. Yet the United States has no domestic capacity to manufacture these critical components of the vehicles of the future. To address this, the American Recovery and Reinvestment Act included $2 billion to support advanced battery manufacturing, and the Department of energy is currently soliciting applications for projects to be funded. Of the $2 billion, $1.2 billion will be for cell and battery pack manufacturing; $275 million will be available for advanced battery supplier manufacturing facilities; $25 million will be for advanced lithium-ion battery recycling, and $50 million will be for electric drive component and subcomponent manufacturing.

On May 19th, the entire Michigan Congressional Delegation wrote to Energy Secretary Chu urging him to consider Michigan’s applications for this funding, which would leverage the $700 million in state tax credits that Michigan has made available. The Michigan tax credits are intended to give Michigan companies a leg up in capturing a battery market that is potentially worth $18 billion/40,000 jobs by 2020.

Michigan brings a lot of natural strengths to the table when it comes to advanced batteries. Locating advanced battery manufacturing in Michigan is a natural given the proximity to the auto industry, the presence of TACOM, Michigan’s skilled labor force, and the strength of our universities. Michigan is well positioned to be the battery capitol of North America.

Tax Incentives

As a member of the House Ways & Means Committee, which has responsibility for our tax code, I am also working to provide tax incentives for advanced technology vehicles. I helped lead the effort to expand the $7,500 tax credit for plug-in hybrid vehicles like the Chevy Volt as part of the Recovery Act. I also authored legislation enacted last year that increased the tax credit for alternative refueling property such as E85 pumps or rapid charging units for plug-in hybrid from 30% to 50%. Currently I am developing legislation to incentivize medium and heavy duty hybrid vehicles.

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(Updated June 19, 2009)