Democrats Poised to Craft Bailout of US Auto Industry

Democratic congressional leaders plan to begin work next week on a financial bailout for the troubled U.S. auto industry, which is suffering under the weight of poor sales, tight credit and a sputtering economy.

Massachusetts Democratic Rep. Barney Frank said his committee will hold a hearing next week to consider a bill to provide $25 billion in federal loans to auto makers.

CNBC.com GM, Chrysler, and Ford

General Motors , Ford Motor and Chrysler have been lobbying for assistance as a severe downturn in U.S. auto sales pummels their balance sheets.

Frank, chairman of the House of Representatives Financial Services Committee, said the money for the loan would come out of the $700-billion financial bailout fund that Congress approved last month. But he said separate legislation would be needed to make that happen.

Treasury Secretary Henry Paulson, while calling autos a "critical industry," said the $700 billion bailout fund wasn't designed for them. The White House was noncommital, but said it was open to new ideas.

At the White House, press secretary Dana Perino said the administration is not responsible for the automakers' woes but understands the importance of the industry. But officials there are reluctant to make any proposals for new aid, suggesting the car companies hold much of the responsibility for their own survival.

GM, the nation's largest automaker, posted a $2.5 billion quarterly loss Friday and warned that it may run out of money by the end of the year without government aid.

"We're in a situation where there's a great unknown about what will happen," said Sen. Debbie Stabenow, D-Mich. "And a great concern that at least one of the companies will find themselves in a situation where they cannot make it until January 20," when President-elect Obama is inaugurated.

Obama has urged the Bush administration to do more to help the industry and aides said he raised the issue with President Bush on Monday in an Oval Office meeting.

GM spokesman Greg Martin said the automaker was "ready to work with Congress and the administration to secure the immediate support we need to bridge the current economic crisis."

Democratic leaders will need to convince some skeptical lawmakers who question whether a bailout would cause changes in the auto industry or simply lead to more handout requests from other industries.

"Once we cross the divide from financial institutions to individual corporations, truly, where would you draw the line?" asked Sen. Jeff Sessions, R-Ala.

Michigan Gov. Jennifer Granholm said Wednesday that the crisis in the auto industry is urgent, arguing that "the national economy rests on this."

"This industry supports one in 10 jobs in the country," Granholm said Wednesday on CBS' "Early Show." "If this industry is allowed to fail, there would be a ripple effect throughout the nation."

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She added: "This government decided that it was going to step in and throw $700 billion at the financial sector. We're just asking for a fraction of that."

House Speaker Nancy Pelosi said any assistance to the industry should include limits on executive compensation, rigorous government review authority and other taxpayer protections.

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