Loan guarantees key for auto industry

By David Bailey

DETROIT (Reuters) - Government-backed loans to the auto industry totaling $25 billion could prevent another crisis in the U.S. economy should the sector continue to stumble, Dura Automotive Systems Inc's top executive said on Wednesday.

"This industry is in dire straits," said Tim Leuliette, chief executive of the auto parts maker, at the Reuters Autos Summit here.

His remarks came amid sharp losses in the stock market as investors were not reassured by the rescue of insurer American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) by the U.S. Federal Reserve.

U.S. automakers and suppliers have been lobbying Congress to approve funding necessary for the industry to access up to $25 billion of low-interest loans to retool and invest in developing advanced technology.

Speaking on a hypothetical basis, Leuliette said the ripple effect of a possible bankruptcy of a manufacturer, like General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz), has been widely overlooked.

"If AIG could not implode without bringing risk to the U.S. economy, General Motors is 10 times more important from the standpoint of what it does to the industrial base in this country," Leuliette said.

An automaker bankruptcy would mean that auto parts suppliers do not get paid, and some companies would move quickly past bankruptcy protection into liquidation, he said.

"When two or three companies have a hiccup, the industry immediately moves the tools, handles it, picks it up, never misses a beat," he said. "Two- to three hundred and we are going to start not being able to build cars for a few months."

After that, more supplier bankruptcies would likely extend the production shutdowns among automakers, Leuliette said.

The provision for low-interest loans was included in last year's energy bill, but Congress would have to approve up to $7.5 billion in taxpayer funding to cover the default risk and issue the loans.

Auto industry executives want to see funding approved before Congress adjourns within weeks for a recess ahead of the national election in November, in which key auto industry states Michigan and Ohio potentially could swing the vote.

"There is not a candidate running for dog catcher or president who is not going to walk through Michigan and Ohio and say 'This has to happen'," Leuliette said. "Once the election is over, that could turn into 'It could happen.'"

U.S. based automakers have the opportunity to bounce back, with GM's Chevrolet Volt electric car and Ford Motor Co's (F.N: Quote, Profile, Research, Stock Buzz) plans to introduce European designs to the U.S. market, he said.

Leuliette said the industry needs such access to the loans given that it is effectively closed to raising capital because of events beyond its control.

"The tools this industry needs to rebuild itself lay shattered on Wall Street," he said. "We still need those tools, and if the government has to give us those tools, or others, it is in everyone's best interest to get access to those tools."

(Reporting by David Bailey; Editing by Derek Caney and Gerald E. McCormick)