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California Dems Want Auto Loans for Silicon Valley



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California’s Nancy Pelosi and Senator Diane Feinstein have emerged as major roadblocks to a Washington compromise speeding an already-appropriated $25 billion in federal loans to U.S. automakers. The California delegation believes that struggling West Coast auto startups should also have access to taxpayer funds. The tensions between California and Michigan over whether the future of the American auto industry is in Detroit or Silicon Valley, little-reported by the press, is a tense sub-plot in the Big Three bailout story.

I have a report in the Detroit News today. Excerpts:

Detroit, Mich. — Think the $25 billion is to help save the Big Three automakers and preserve manufacturing facilities essential to national security? Think again.

Detroit automakers’ best hope for Washington aid is a bipartisan plan to speed the release of $25 billion in already-approved loans under the Energy Independence and Security Act (EISA). But long-simmering hostilities between the California and Michigan delegations on auto issues threaten the deal. California legislators want that money to subsidize their own Silicon Valley-based auto industry, which they argue is the future of American transportation.

The Detroit Three automakers have driven the perception that the $25 billion package to help pay for “retooling” factories to make more fuel-efficient cars under increased gas mileage standards and a possible additional $25 billion bridge loan are rescue packages meant for Detroit alone. But a letter from U.S. Sen. Diane Feinstein, D-Calif., on Thanksgiving Eve makes clear what few taxpayers know: The billions in auto loans are a giant honey pot intended for any auto manufacturer in the nation.

In fact, Tesla Motors, a struggling San Jose start-up manufacturer of electric cars in Feinstein’s back yard, has already applied for $400 million in EISA loans to build a new plant for making a luxury $60,000, battery-powered family sedan.

Once synonymous with Detroit, the “American auto industry” now depends on your geographical perspective. . . . That is why Feinstein wrote Senate Majority Leader Harry Reid: “I do not support disadvantaging the next generation of American automobile companies in an effort to save the first generation.”

A closer look at Tesla reveals a high-tech company in deep financial trouble. According to a Nov. 3 issue of Business Week, Tesla looks “a lot like the Motor City.”

The magazine found that, until “a few weeks ago,” Tesla had “dreams of one day producing a line of electric vehicles for every purse and purpose. Then the world changed. … Investors, fazed by the credit crunch, were suddenly demanding tougher terms. (Tesla founder Elon Musk) began retrenching, cutting costs and postponing Tesla’s second model, the $60,000 Model S sedan.”

Is its federal loan application seed money — or bailout money? Auto analyst James N. Hall sees a grim future for the company: “If the market wants (electric cars) in the number Tesla is talking about,” he told Business Week, “a larger auto company will bury them on cost.”



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