The US House of Representatives has approved funding for a $25-billion loan programme aimed at aiding the auto industry to build more fuel-efficient vehicles. The aid programme was supported by both political parties on account of this being an election-year, and the issue is of significant importance in states like Michigan and Ohio, where a number of the automobiles are manufactured.

The $25-billion rescue seems pale in comparison to the $700-billion Wall Street bailout by the Bush administration (See: Bush's $700 billion bailout plan for banks faces Congress heat). Michigan lawmakers say they were preparing to ask for another $25 billion over the next three years.

However, critics of the loan package say it is little more than an exercise in futility.

In a statement, the National Taxpayers Union said that the loan deal sets a ''horrible precedent for companies in other sectors'' of the American economy. The union says that "If troubled firms seek revitalisation, they should restructure their businesses the way millions of families have had to restructure their budgets, rather than bellying up to Congress' trough."

GM, Ford and Chrysler executives had lobbied on Capitol Hill to fund the low-interest federal loans. They say that the aid package would help ''an important US industry'' which is struggling with the difficult economic conditions as they work to ''meet stricter miles-per-gallon rules mandated by Congress last year.''

Though the measures do not explicitly preclude foreign automakers, the loans are intended to help manufacturers transform their ageing factories to produce new generation vehicles. Most foreign auto companies, notably the Japanese and Koreans, do not have facilities in the US that are old enough to qualify for the aid package, effectively meaning that most of the $25 billion will end up in the pockets of the American automakers. Reports suggest that some of the loans would be available to suppliers to the auto industry.

Supporters of the loan programme for the auto industry insist that it is not a bailout package, and that the money would be repaid, citing a programme that provided $1.5 billion to Chrysler in 1980, though billed a bailout actually led to a $313-million profit to the US government.

Automakers would most probably be allowed to repay the loan over almost 25 years, and the Energy department would have the discretion to defer repayments for almost five years. It remains to be seen as to how the funding would be divided amongst the American automakers.

The loan programme is part of a huge spending bill, which must be passed by Congress before it adjourns for the fall campaign. It was approved by the House of Representatives 370 to 58, and will now proceed to Senate for an expected approval.

The spending bill includes a $23 billion disaster aid package for places in the US such as as the hurricane-stricken Gulf Coast and the flood-ravaged Midwest. It also aims to double the quantum of energy assistance to help low-income families pay for home heating and air-conditioning bills by allocating $5.1 billion.

According to the National Energy Assistance Director's Association, California's share of the energy assistance package will catapult from $103 billion to $225 billion, as a family of four in the state with an annual income of $42,427 or less is eligible for the utility-bill assistance. That, even as the legislation allows the state to raise the eligibility level.

However, the spending measure leaves out an extension of the long-standing ban on new oil drilling off most of costal US. The ban will expire this week, though supporters hope it would be renewed either in part or in full sometime next year.

The American automakers are reported to be optimistic about paying a 5-per cent interest on the loans, in lieu of rates as high as 20 per cent that they now pay on their borrowings, partly because of their poor credit ratings. The differential in the interest rate would help them save around $100 million annually for every $1 billion in loans, nothing up savings of around $2,500 million a year.

Michigan also leads in the national unemployment rate, with a rate of 8.9 per cent. Lawmakers from the state alongside executives from GM, Ford and Chrysler and the congressional Auto Caucus along with 10 state governors lobbied for the loan program arguing that it was crucial as the crisis in the credit markets greatly increased borrowing costs.

The Taxpayers for Common Sense, a watchdog group, criticised the aid package, saying that boosting the automakers' bottom line might make good political sense with Michigan being a battleground state, but it makes little sense for taxpayers who risk being stuck with even more debt.

However, evidence of the aid package should be seen in a broader line-up of gas-electric hybrid vehicles, new plug-in electric cars and an expansion of fuel-efficient engines, if the aid package indeed works to plan.

GM had recently taken the covers off a production version of the Chevrolet Volt, and said it would be in showrooms most probably by late 2010. The car is expected to cover up to 40 miles on a single charge. GM is also planning to build four-cylinder engines in Flint, Michigan, for the Chevrolet Cruze, a new small car.

Ford has announced plans a few months ago that will see the auto maker come out with six small fuel-efficient cars that it manufactures in Europe. It said it would sell those cars in North America.

Not to be left behind, Chrysler too showcased three electric-powered prototypes this week, saying that it would definitely sell one within the US by 2010.

Industry officials had originally floated a three-year plan for $50 billion in loans, before agreeing to the $25 billion package. The media quoted Rep. John Dingell, (Democrat) of Michigan as saying that they would pursue a second $25-billion package going forward.

The Financial Times reported that the Department of Energy would take time to draw up the regulations that would govern these loans, and therefore they would be ready only by 2009 at the earliest.