US bailout, plug-in credit a boost for automakers

By John Crawley

WASHINGTON, Oct 3 (Reuters) - Automakers received another boost from Congress with passage on Friday of the $700 billion financial rescue bill that the industry hopes will revive car loans and help create a mass market for electric vehicles.

The legislation signed into law by President George W. Bush aims to buy bad debts from financial institutions to address a a credit crisis which has hit the slumping U.S. auto industry particularly hard.

"Congressional action couldn't come at a more critical time," General Motors Corp (GM.N) spokesman Greg Martin said. "We believe this bill will restore confidence in our financial markets and restore the flow of credit that in our business dealerships so heavily depend on."

A 26 percent drop in industrywide sales reported earlier this week was partly blamed on the inability of buyers to finance purchases. And GM's GMAC financing affiliate scrapped the sale of $2.7 billion in corporate loan commitments on Thursday in another sign that tight credit markets are hitting automakers.

Consumers use credit for more than 90 percent of all new vehicle purchases, according to industry figures, and the scarcity of auto loans was used repeatedly by congressional leaders in recent days to help sell the financial rescue package to reluctant lawmakers and skeptical constituents.

The financial bailout comes just days after the government made $25 billion in federal loans available to mainly struggling Detroit manufacturers to help them develop fuel saving technologies needed to meet sharply higher federal efficiency standards next decade.

The money is for retooling outdated plants and accelerating research and development. Better engine and transmission designs are quickly factoring into Detroit's plan, but GM, Ford Motor Co (F.N) and Chrysler LLC are also racing foreign rivals to develop electric cars.

The financial bailout legislation included a consumer tax credit of between $2,500 and $7,500 for plug-in vehicles.

Industry experts say tax incentives have been an effective means to accelerate early consumer interest in new technologies. Tax breaks helped propel sales of the hybrid Prius made by Toyota Motor Corp (7203.T).

Dave Cole, director of the Center for Automotive Research, said the plug-in technology is real and the innovation, in place. "But this stuff is expensive," he said.

Cole called the tax break a bridge to enable the vehicles to get started in the market without "horrifying costs to the consumer or the company."

GM hopes to roll out the Chevrolet Volt in 2010. The automaker has not announced a sticker price, but its chief executive has said it could top $30,000.

Toyota hopes to introduce a plug-in version of its Prius hybrid in late 2009 for fleet operators. There is no timetable for bringing it to the mass-market.

Ford is testing plug-in versions of its Escape SUV as part of an alliance with Edison International (EIX.N) utility Southern California Edison. The test is expected to run for about three years.

Chrysler plans to launch an electric vehicle for North American customers in 2010.