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FINANCIAL CRISIS

Bailout door still open for automakers

Leaders in Congress agree to revisit the matter next month but want details on how the aid would be used.

November 21, 2008|Richard Simon and Jim Puzzanghera | Simon and Puzzanghera are writers in our Washington bureau.

WASHINGTON — Congressional leaders agreed Thursday to give Detroit automakers more time to make their case for a $25-billion emergency bailout, but they demanded that General Motors Corp., Ford Motor Co. and Chrysler provide detailed plans for using the money to assure their long-term viability without more handouts.

House Speaker Nancy Pelosi (D-San Francisco) and Senate Majority Leader Harry Reid (D-Nev.) agreed to call Congress back into session next month to revisit the bailout issue.

"The sad reality is that no one has come up with a plan that can pass the House and the Senate and get signed by President Bush," Reid conceded. "The executives of the auto companies have not been able to convince the Congress or the American people that this government bailout will be its last."

The Senate, meanwhile, sent Bush what may be the only economic relief measure to get through the lame-duck congressional session: an extension of unemployment benefits.

Approval of the $6-billion measure, which had already passed the House, came as the government said new jobless claims rose to their highest level in 16 years. The bill would extend unemployment checks by seven weeks in all states and an additional 13 weeks in high-unemployment states, including California, Illinois, Florida and others with an unemployment rate of 6% or more. Bush supports the extension.

But the auto industry's troubles continued to darken the economic outlook. The stock market, which rallied on midday news that a bipartisan group of senators had struck a deal on a bailout, tanked after the Reid-Pelosi announcement made it clear no money would begin flowing to industry coffers any time soon. The Dow ended the day down 444 points, or 5.6%.

In another sign of the financial pressure on Detroit, GMAC Financial Services -- the arm of GM that finances car purchases -- said Thursday that it had applied to become a bank holding company so that it would be eligible for aid under the government's $700-billion bank rescue plan.

During two days of testimony this week, the chief executives of GM, Ford and Chrysler, along with the head of the United Auto Workers union, failed to convince lawmakers that the companies were becoming more cost-efficient and competitive.

They also did not allay fears that the proposed $25 billion in emergency loans would be just the first of many government payments needed to keep the Big Three afloat.

The CEOs were criticized for being vague about how they would use bailout funds. They only reluctantly revealed how much each company was seeking -- $10 billion to $12 billion for GM, $7 billion to $8 billion for Ford and $7 billion for Chrysler.

And news that the company heads had flown to Washington on separate private jets hurt their image, with one congressman calling it arrogant.

"What happened here in Washington this week has not been good for the auto industry," Reid said, adding that "these guys flying in their big corporate jets doesn't send a good message to people in Searchlight, Nev., or Las Vegas, or Reno, or any other place in this country."

Greg Valliere, a political strategist for financial services firm Stanford Group Co., said the auto company chiefs didn't present a very "compelling -- or sympathetic -- case."

"The kiss of death may have been management arrogance over the private jets," he said. "It struck a nerve. It symbolized how tone-deaf and hubristic the industry has become."

Congressional Democratic leaders and the White House have been deadlocked in a high-stakes game of chicken as the fate of the automakers, their suppliers and their hundreds of thousands of workers hung in the balance.

GM and Ford have lost a combined $30 billion this year, while U.S. sales by all three carmakers have declined 21%. This month, GM said it might not have enough cash to pay its bills in the first half of next year. All three companies have been unable to borrow money in credit markets.

The Bush administration was prepared to let the bailout die rather than let the money come from the government's $700-billion Troubled Asset Relief Program, even though more than $350 billion remains in the fund and there aren't plans to spend it.

For their part, Democratic leaders said they would let the rescue effort die rather than divert money from an existing $25-billion fund to help auto factories retool to make more fuel-efficient cars -- an approach favored by the White House and embraced in a bipartisan plan crafted by Sens. Carl Levin (D-Mich.) and Christopher S. Bond (R-Mo.).

Environmental groups opposed diversion of the funds.

"We can't bail on the fuel-efficient vehicles of the future in order to bail out the automakers," said Rep. Edward J. Markey (D-Mass.), who was a key author of tougher vehicle fuel-economy rules enacted last year.

Democrats could wait to act on bailout legislation until President-elect Barack Obama takes office Jan. 20 with strengthened congressional majorities, but one or more of the automakers might not survive until then.

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