Congress, White House Clash On Auto Industry Bailout

The White House and congressional Democrats launched a post-election showdown over how to rescue U.S. automakers with millions of jobs, more than a century of iconic brands, and potentially economic confidence, riding on the outcome.

As the year that celebrates the 100th anniversary of the Model T races to a close in volatile political environment, the Bush administration and many lawmakers agree that up to $25 billion in loans should be extended to General Motors , Ford Motor and Chrysler.

AP

But there are key differences on the details. Democratic leaders plan to forge ahead with an industry-backed proposal that would offer $25 billion from the Treasury Department's $700 billion financial industry rescue fund.

Senate Democrats are proposing to deny bonuses to U.S. auto executives making more than $250,000 a year in exchange for giving the firms and their suppliers the $25 billion in loans.

The companies would first have to give the government a plan for "long-term financial viability," according to a copy of the legislation obtained by The Associated Press.

The loans—which would start at a 5 percent interest rate—would come from the second half of the financial industry rescue money.

The measure also would extend jobless aid to unemployed workers whose benefits have run out.

In response to the proposal, the White House said it was "surprised" that Senate Democrats proposed a bailout that doesn't require the U.S. automakers to restructure.

The White House wants Congress to amend a law passed in September that made a separate $25 billion in financing available to Detroit for retooling factories to make more fuel efficient cars.

Either path requires quick congressional action in a short lame-duck session following the Nov. 4 elections, with a new Congress to be seated next year.

"We want the automakers to succeed," White House spokeswoman Dana Perino said. "These are great historical companies in the United States and they have a way to get back on a path to be better companies."

The companies that for decades have rolled out Cadillacs, Jeeps, and Mustangs, and their allies in Congress, argue a bailout is justified on grounds they back one in 10 U.S. jobs.

But segments of the public disagree. In interviews from New York to Los Angeles, Americans said the planned rescue was unfair and would make it harder to reform U.S. automakers.

Detroit is bending under the weight of the global financial crunch that has choked off corporate and consumer credit and is fast depleting its available cash and magnifying the drag on its operations of high operating expenses and legacy costs.

Video: Big Three auto makers gear up to face Congress.

Industry's problems are compounded by consumer tastes moving away from bread-and-butter pickups and sport utility vehicles to more efficient brands made by overseas rivals.

"They need to restructure. If they get bailed out they are not going to do it," said Eric Smith, a paint contractor interviewed in Chamblee, Georgia, on the outskirts of Atlanta.

Economic Impact

Kicking off Senate debate on Monday, Sen. Arlen Specter, a Pennsylvania Republican, said he was open to supporting help for automakers under certain conditions. Another Republican, Sen. Christopher Bond of Missouri, expressed a similar sentiment and said action was needed now.

"I'm pleased to see there seems to be broad support for assisting the auto industry despite disagreements," Bond said.

U.S. automakers say they are urgently trying to overhaul their businesses to meet a global demand for fuel efficient products, like better performing gasoline engines, electric cars and more hybrids.

But industry executives say they may never get there unless bailout money is approved now. They add that the shock of any collapse will shake the economy.

If the auto industry comes under severe pressure, GM chief executive Rick Wagoner said in a television interview on Sunday, "the impact on the whole U.S. economy will be devastating."

All three companies have rejected bankruptcy as an option.

GM, Chrysler and Ford employ close to 250,000 people in the United States and supporters claim they touch more than 4 million other jobs. These include suppliers, dealers, car haulers, rental companies and in unrelated businesses, especially in the economically hard-hit Midwest.

"If General Motors is unable to solidify government aide this week and is forced to wait for the next administration, we would become more concerned about working capital related liquidity risks in the interim, as suppliers could become more anxious with the uncertainty," Citigroup autos analyst Itay Michaeli said in a note to clients on Monday.

Many parts suppliers and dealers have agreements with transplanted automakers as well, potentially interrupting the business of competitors to the Big Three in the short term.

A potential threat to the integrated supplier network prompted Japan's Honda Motor to support an aid package for its U.S. rivals.

Republican Backing Needed

Lawmakers and aides have said the Democratic plan will need Republican backing to pass. Sixty votes in support are needed in the Senate to overcome any procedural hurdles, which Democrats expect Republicans to launch.

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Rep. Barney Frank, chairman of the House of Representatives Financial Services Committee, and Sen. Carl Levin of Michigan, point-man in the Senate on the auto bailout, are spearheading Democratic efforts.

They plan to propose stiff conditions to win support from wavering Democrats and Republicans. Conditions, the two have said, would include limits on executive bonuses and a prohibition on shareholder dividends.

There is also expected to be a demand at a Senate hearing on Tuesday that Detroit chief executives offer a plan for ensuring their companies' viability, if they get a bailout.

"We need to provide assistance to the auto industry. But I think that it can't be a blank check," President-elect Barack Obama said in an interview on CBS's "60 Minutes" on Sunday.

Obama said Congress should also demand conditions involving labor, suppliers and lenders so that "we are creating a bridge loan to somewhere, as opposed to a bridge loan to nowhere."

• Get Real-Time Quotes for GM and Ford

President George W. Bush, whose fortified limousine is made by GM, opposes a bailout using Treasury rescue funds that the administration argues are, by law, intended for distressed financial services companies.

But Democrats oppose using the retooling loans, saying amending that law would require gutting the package's centerpiece for transforming industry operations to meet new fuel efficiency standards.

Perino said the White House believes "there is a bipartisan path" to get some help for Detroit "very quickly this week."

Shares of GM rose more than 5 percent to over $3 in afternoon trading on the New York Stock Exchange, while Ford slipped nearly 3 percent to below $2. Chrysler is privately held by Cerberus Capital Management.

- AP contributed to this report.

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