During a teleconference with Iowa reporters from Washington, Grassley praised U.S. President Barack Obama for saying his administration wouldn't walk away from the auto industry.
Both General Motors and Chrysler have sought federal help to avert bankruptcy. They have already received $17.4 billion in bailout money and are seeking more.
"As American taxpayers are asked once again, then, to help retool the domestic automakers, it appears to be an opportune time to secure a commitment from the auto industry about their production of flex fuel vehicles as well as the industry's support for blends of ethanol and gasoline that are above 10 percent," Grassley said.
Grassley said he has sent Obama a letter, asking him to consider such requirements before granting further funds.
"If U.S. taxpayers are being called upon to bail out the auto industry, to underwrite their retooling, it seems only reasonable that we can expect them to manufacture vehicles that fully utilize homegrown biofuels and enable our efforts to eliminate our dependence upon foreign oil," Grassley said.