“So unnecessary.” That’s how a colleague summed up the consuming industry/political angst late last year, as GM and Chrysler sweated a decision from then-President George W. Bush on whether to bail them out, at least for the first time. Weeks earlier, the feds had approved $25-billion in low-interest loans for OEMs to retool plants to build smaller cars, smaller engines and electric vehicles (EVs). Why, my colleague asked, didn’t Congress simply go around the president: they could have simply taken money from that retooling appropriation and used it to keep the lights on at GM and Chrysler?

At the time, I agreed with him. But I’m glad the government wasn’t listening to us. Instead, the Department of Energy waited – or more likely, finally untangled the bureaucracy – until now to start divvying up the money appropriated last year. The first installment, $8-billion, couldn’t come at a better time, this being our summer of discontent. Under the plan, Ford gets $5.9-billion to rehab engine and assembly plants in Illinois, Kentucky, Michigan, and Missouri; Nissan will receive $1.6-billion to retool its Smyrna, TN, factory to make a five-passenger EV and to build a lithium-ion battery plant; and $465-million goes to Tesla Motors to manufacture electric drivetrains and EVs in California. Each project is supported 80% by a government loan and 20% by a company investment. The remaining $17-billion in DOE funds are still pending decisions (so GM, Chrysler and some 70 other applicants needn’t sulk just yet).

For Ford, the loans also mean expanding production of its EcoBoost engine, making more advanced transmissions and the next generation of its hybrid system. It also means continuing the push to smaller cars, e.g., its Louisville, KY, assembly plant will be converted from trucks to a future C-platform car. Ford was going to be doing this anyway, but the loan adds two things: speed and specificity. The same is true for the long EV-bound Nissan, which says after the retooling, Smyrna will be capable of full production capacity of 150,000 EVs by the end of 2012. Nissan will need 300 additional employees to assemble the car and up to 1,000 others to operate the new battery shop and clean room. The financing also provides some room for suppliers to at least pitch proposals for new machinery, tooling, software, and other subsystems to make the smaller cars as well as what goes into them: namely lighter-weight materials, from instrument clusters to armrests to seat cushions. It’s also not unrealistic to expect opportunities for makers of everything from light-emitting diodes to bearings (an engineer from bearing maker SKF recently told me Tesla is using SKF’s more energy-efficient bearings in its powertrain). All of a sudden, green vehicle manufacturing seems to be more than a symbol of something that would happen someday.

These loans carry 3% to 4% interest. Try getting that on a multi-billion-dollar line of credit from a bank these days. These companies would probably pay 13 to14% minimum, especially because, well, they make cars. When you think about it, the public/private interest differential is key; for every million bucks in federal loan funds, there’s $100,000 or so that can be earmarked for product development instead of for paying bank interest.

U.S. Energy Secretary Steven Chu says the loans will enable the production of 2 million fuel efficient vehicles a year (read, “CAFE approved”), or about 20% of annual vehicle sales if the industry holds its present course. Chu is a Nobel Prize winner in physics, so he’s well aware of Newton’s laws, especially the first one about the inertia of objects. The feds have applied some force, perhaps enough to get this stationary object we call the “auto industry” into motion.