White House Open to Using Bailout Money to Aid Detroit
STEPHEN LABATON and DAVID M. HERSZENHORN
WASHINGTON — The Bush administration said on Friday that it was prepared to intervene to prevent the collapse of General Motors and Chrysler after Republican senators blocked a compromise proposal to rescue the automakers.
Senator Bob Corker prepared to talk to TV reporters on Friday about the failed auto bailout bill on Capitol Hill.
The decision came after a tense standoff this week in which senior White House officials pleaded with Senate Republicans not to block the measure, including a warning by Vice President Dick Cheney that they would be remembered for decades as the party of Herbert Hoover if the industry collapsed.
But while Senate Republicans stood their ground — in open revolt against President Bush — it was the White House that gave in.
Shortly before the American markets opened on Friday morning, White House and Treasury Department officials, concerned that steep declines in overseas stock markets could provoke a new round of market panic in the United States, said the administration would consider providing temporary relief.
After refusing for weeks to tap the $700 billion financial rescue fund, the administration suggested it would dip into the fund to at least permit the companies to continue their operations until the new Congress and new administration arrive next month.
“Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” said Brookly McLaughlin, a Treasury spokeswoman.
Administration officials said they had not decided how much to loan the auto companies or on what terms, and were spending Friday examining their books and cash-flow projections.
The government officials said they expected the companies and the unions would be asked to make significant concessions. They also did not rule out the prospect of a bankruptcy for one or more of the companies, but vowed that it would not be “uncontrolled,” meaning that enough financing would be provided to enable a reorganization.
Senior administration officials spent part of the day talking to auto executives and their lobbyists. People briefed about the discussions said that Chrysler had asked for financing to make it to February or March and the company was hoping that the administration would decide to lend it and General Motors about $11 billion. G.M. has said it needs $4.4 billion this month and another $4.4 billion next month
Administration officials said they feared a collapse of one or more of the car companies could have broader implications for the economy.
Some 3,000 suppliers, for example, are owed about $13 billion by the auto companies, according to Neil De Koker, chief executive of the Original Equipment Suppliers Association in Troy, Mich., a trade group that represents auto suppliers. Most suppliers sell parts to all three companies, as well as to Japanese auto makers. The fear is that if one of the Big Three fail, it would take down important suppliers who would then be unable to send parts to the others.
The flat financial markets on Friday appeared to give some breathing room to the administration as it worked to hammer out a plan. Officials cautioned that this rescue plan might not resemble either the House bill or the alternative put forward by Senate Republicans.
The White House had initially expressed reluctance to intervene in the auto crisis, and instead supported redirecting $14 billion that Congress had allocated to help the automakers retool to make more fuel-efficient cars. All but $15 billion of the first $350 billion of the financial rescue fund has been committed by the administration to banks and other financial institutions, and Treasury officials had been saying before Friday that they did not know whether they would seek permission from Congress to use any of the other $350 billion. But Congressional leaders have said that the lawmakers have no intention of returning to Washington until the new session begins next month.
Labor leaders in Detroit hailed the announcement by the administration.
“I think it’s great news, the responses we’ve been getting out of the White House and the Treasury,” said Ron Gettelfinger, the president of the United Automobile Workers union. “It’s important for the White House to exert their influence to release this money as quickly as possible. We cannot afford a run on the banks.”
Both G.M. and Chrysler have said they are in desperate need of cash by the end of December to pay suppliers that have already delivered parts, as well as to make employee payrolls.
The two automakers have both hired bankruptcy counsel, but have repeatedly said that a Chapter 11 filing is a bad option because of the difficulty in getting financing while reorganizing.
The companies are also cutting costs deeply to preserve their dwindling cash hoards. Chrysler just cut another 5,000 salaried jobs through buyouts and early retirements at the end of November. G.M. said Friday that it would drastically reduce vehicle production in the first quarter of 2009 by 250,000 units.
On Capitol Hill, lawmakers from both parties called on the Bush administration on Friday to take swift action to prop up the automakers, while Senate Republicans defended their refusal to support a taxpayer-financed rescue plan.
The Senate vote just before 11 p.m. Thursday ended more than a month of debate on Capitol Hill about if and how the government should aid the failing automobile manufacturers, and it capped a frenzied 48-hour legislative roller-coaster ride.
And it came just 36 hours after Mr. Cheney attended a weekly lunch with the Senate Republican conference to plead with lawmakers not to block a rescue of the auto industry.
With the Republican Party still reeling from its defeats in November, and with the unpopularity of the Bush administration, some Republican aides suggested that Mr. Cheney had not helped win support and might have actually lost votes.
It was clear even before the lunch that they would face a tough sell. Several Republicans have given speeches saying they oppose the idea.
There was little appetite among Senate Republicans for another multibillion-dollar corporate bailout and less so for the American automakers who were widely perceived as victims of their own bad business decisions over decades. But Senator Bob Corker, the junior Republican from Tennessee, offered to pursue a potential compromise.
Mr. Corker quickly provided Democrats with the text of a five page amendment to the auto rescue bill, which would require much steeper concessions by the companies and the U.A.W.
As the senators met in the ceremonial conference room of the Senate Foreign Relations Committee on the first floor of the Capitol, lobbyists and other representatives of G.M. and the Ford Motor Company gathered nearby. Eventually, they were also joined by Stephen A. Feinberg, the reclusive founder of Cerberus Capital Management, which owns Chrysler.
Negotiators on both sides said they were able to agree on Mr. Corker’s proposal to require a huge slashing of debt obligations by the automakers, including an agreement for the union to accept an equity stake in place of payments that it was owed to employee benefits accounts.
But Mr. Corker said Republican senators were also insisting on steep cuts in wages and benefits that would bring the American automakers in line with United States-based employees of Toyota, Nissan and Honda. And he said that the Republicans wanted a firm deadline, sometime in 2009, for the automakers to carry out those cuts.
It was over that point that the talks deadlocked, with the union pushing for those cuts to take place after its current contract expires in 2011.
Alan Reuther, the chief lobbyist for the union, said labor leaders back in Detroit were astonished at what Mr. Corker was attempting to accomplish — a virtual rewriting of the U.A.W. contract, which typically takes the better part of a year to negotiate. “That’s one thing that our folks in Detroit were just amazed at,” Mr. Reuther said. “Does Senator Corker really think he can do a restructuring of the industry in six hours?”
When the U.A.W. would not agree to a 2009 deadline, it was clear that no deal could be struck. “It seems that the U.A.W. blew it up,” said Senator David Vitter, Republican of Louisiana.
www.nytimes.com/2008/12/13/business/13auto.html