Auto Makers Will Now Be Eligible for TARP Funds

In yet another expansion of the TARP program, Treasury Secretary Timothy Geithner plans to use part of the $700 billion financial bailout fund to buy up debt from the troubled auto industry.


In a letter to Senate Finance Chairman Max Baucus, Geithner said that "debt obligations issued by companies engaged in the manufacturing of automotive vehicles" can be purchased by the TARP program "to promote financial market stability."

The letter, which was was obtained by CNBC, does not name any auto companies that might be eligible for TARP funds.

Earlier this month, the Treasury decided that insurance companies that own banks or thirfts could also receive TARP money.

The decision comes as two of the three Detroit car companies struggle for survival.

Chrysler is expected to become a partner with Italian automaker Fiat Group on Thursday, sources said, the last piece of a huge restructuring plan needed to keep Chrysler alive. Chrysler faces a Thursday government deadline to cut labor costs, slash debt and take on a partner.

General Motors , which has been kept in operation with $15.4 billion of US government funding, has until June 1 to push ahead with its own restructuring which includes plans to cut 40 percent of its U.S. dealers in less than two years.

—Reuters contributed to this story.