Aid plan proposed for auto industry

House Democratic leaders are considering a $25-billion rescue package for the auto industry as part of an effort to bolster the sagging U.S. economy. The aid proposal, with its clear political implications for key battleground states, is likely to be put on a legislative fast track, possibly clearing Congress in a matter of weeks.

“This is very, very important. It’s an important industry in our country,” House Speaker Nancy Pelosi (D-San Francisco) said. “It’s about jobs. Jobs, jobs, jobs, jobs.”

Coming just days after the Treasury stepped in to bolster housing and financial markets with a takeover of mortgage titans Fannie Mae and Freddie Mac, the Democrats’ proposal reflects a new readiness in Washington to intervene in economic trouble spots. It also is a sign of the intensifying effort by presidential candidates in both parties to woo voters in the battered but politically pivotal states that are home to the auto industry -- especially Michigan and Ohio.

Democratic leaders said they had not yet decided whether to include the aid plan -- which would come in the form of low-cost government loans focused on helping Detroit develop more fuel-efficient vehicles -- in an energy bill or in a broad new economic stimulus package.

“The best bill to include this in is the bill that has the best chance of getting passed,” said Greg Martin, Washington spokesman for General Motors Corp.

But the proposal drew immediate fire from some budget hawks. Sen. Jim DeMint (R-S.C.) said: “Washington’s misguided bailout of the mortgage industry has sparked a run on the federal Treasury, and taxpayers simply can’t afford it.”

President Bush, arguing that the $168 billion in checks mailed out to taxpayers over the summer was sufficient, opposes any broad new stimulus plan. But White House officials said they were willing to work with Congress, which adjourns its fall session in three weeks, on aid for Detroit.

“We’re aware of the issue and will look at it with Congress,” said a senior administration official who requested anonymity when discussing legislative strategy. “Obviously, when there is a proposal to provide taxpayer support for private companies, we will want to make sure all consequences are seriously considered.”

On Tuesday, Democratic presidential nominee Barack Obama campaigned in Michigan, while Republican John McCain stumped across Ohio. Both are promising federal help for a region and an industry in crisis.

“What we have to do is invest in retooling the auto industry to make our cars more efficient and make sure they’re made not in Japan, not in South Korea, but right here in Michigan and right here in the United States of America,” Obama said at a town hall-style event in Farmington, Mich.

McCain too has expressed support for such action. “Our auto companies are rising to the challenge building the next generation of American cars, but are doing so in times when credit conditions cripple the funding for the facilities and technologies to take the steps to the future,” McCain said in a statement last month. “I believe we should . . . take action that will assist Detroit and its suppliers in making it through this difficult time of transition.”

Michigan has the highest unemployment rate in the country at 8.5%, with some auto-building centers experiencing double-digit joblessness. The largest U.S. automakers, Ford and GM, lost more than $24 billion in the second quarter of this year as gasoline prices and the slowing economy sent sales plummeting.

The misery has spread to neighboring states as the industry’s troubles rippled out to parts suppliers and other auto-related companies.

Auto-state lawmakers have been pushing the White House to consider a rescue package.

Nate Bailey, a spokesman for Rep. Joe Knollenberg (R-Mich.), said his boss had discussed the assistance with Bush administration officials and was hopeful that the measure would win the support of Congress and the president.

“We’re confident that the White House will come to see how important this is for the economy,” he said. “There are a lot of states that are touched by the auto industry, and we’re confident that all of those members will understand the importance to their hometowns,” Bailey said.

“We don’t want to see any more plant closures or massive layoffs.”

Citing the cost to the auto industry of dealing with mandates to produce more fuel-efficient vehicles, Rep. Mike Rogers (R-Mich.) said: “You’ve got a domestic auto industry that is in the throes of trying to compete . . . and around its neck is $80-billion worth of government mandates. If we want to invest some money in not buying foreign oil, I can’t think of a better way than helping these companies offset these government mandates.”

Rogers and auto industry representatives bristled at talk of a “bailout,” noting that the terms of the program are quite specific. The money would take the form of low-interest loans and would have to be used to develop technologies delivering at least a 25% increase in fuel efficiency. The loans could not go to any company that was in danger of bankruptcy without federal support.

“There is this image here that this is just like what [Treasury Secretary Henry] Paulson did with Fannie and Freddie, and this is nothing like it,” Rogers said. “These are loans.”

Last year, Congress authorized as much as $25 billion in loans to auto companies -- to be used expressly on figuring out how to increase fuel efficiency. The president signed the bill, but the money was never appropriated.

GM’s Martin said market conditions subsequently have deteriorated so much that the program should be expanded to $50 billion.

The effort to aid Detroit comes as House Democratic leaders are working to bring an energy bill to the floor this week. It would allow new drilling off the Southeastern U.S. and off the gulf coast of Florida.

Pelosi previously had softened her opposition to amending the long-standing ban on new offshore energy exploration. The bill under consideration reflects the political heat some rank-and-file lawmakers are feeling over repeated Republican complaints that the Democrat-controlled Congress has not done all it could to bring down gasoline prices.

On Tuesday, Democratic leadership aides were working on a proposal to allow, at the very least, new energy exploration off the coasts of Virginia, Georgia, North Carolina and South Carolina and off the Gulf Coast of Florida. A similar proposal has been gaining bipartisan support in the Senate.

But the proposal is expected to draw criticism from House Republicans that it doesn’t go far enough. Bush and McCain have called for lifting the drilling ban for the entire East and West coasts, an idea that continues to face strong opposition from congressional Democrats.

Sierra Club lobbyist Melinda Pierce said: “We don’t believe drilling is going to lower prices at the pump.” But the group credited Pelosi with “trying to advance a strategy that allows some drilling as part of a compromise package that seeks to finally pass some of the long-stalled clean energy provisions on wind, solar, transit and efficiency.”

--

richard.simon@latimes.com

maura.reynolds@latimes.com