Government Aid to Automakers is Not a Bailout, Ford CEO Says

Money will be used to retool and adapt factories to make more fuel-efficient cars

Government loans awarded to three major U.S. automakers are justified as they need them to meet new environmental regulations, Ford chief executive Alan Mulally said Oct. 2. "This is not about a bailout," the Ford chief executive said at the Paris auto show. "It was very insightful what they did with the recent credit tightening, otherwise it would have really slowed down all efforts to being new technology into fuel-efficient vehicles."

Critics have alleged the U.S. firms received an unwarranted subsidy.

President George W. Bush signed a new energy bill on Sept.30 after it received approval from Congress. It includes a $25 billion loan package to help Ford, General Motors and Chrysler adapt to new emissions regulations. Mulally said the cost of meeting new regulations could be as much as $110 billion.

The money will be used to retool and adapt factories to make smaller, more fuel-efficient cars. Mulally said the extra cash could also be used to develop cars that will be sold in Europe. "When we make a 'global' car for the United States, they will also be vehicles that will be sold in Europe," he said.

The former Boeing chief executive rejected the argument that Ford had focused too heavily on larger, gas-guzzling vehicles and failed to anticipate the developing trend towards smaller cars. "We weren't pushing these larger vehicles, we were just building what our customers wanted," Mulally said.

Although SUVs and larger cars are less fuel-efficient, they carry bigger profit margins that can significantly boost an automaker's bottom line.This is because they can charge more for larger vehicles, better covering development costs.

The Ford chief executive said that the challenge for his company was to make sure that every vehicle in its lineup makes money.

While the three big U.S. companies have requested government cash, Japanese automakers Nissan, Honda and Toyota have said they would not seek to access funds from the $25 billion package.

Ford however badly needs the cash injection. In the second quarter of 2008, it posted a net loss of $8.7 billion. down from a net profit of $750 million for the same period in 2007. GM lost $15.5 billion in the second quarter of 2008, compared with a profit of $891 million in 2007. Chrysler is now owned by private equity group Cerberus and is no longer obliged to make its results public.

Copyright Agence France-Presse, 2008

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