Detroit closer to stopgap bailout
Moving to keep the auto industry from collapse, congressional Democratic leaders agreed late Friday to a stop-gap compromise that would provide $14 billion in aid by diverting money from an existing fund that was supposed to help automakers make more fuel-efficient cars, according to senior aides.
The measure still needs support from some Republicans to get through the Senate, as well as White House approval. But President Bush has already come out in favor of using money from the Energy Department’s $25-billion advanced technology fund to help the car companies and reiterated that point Friday in urging Congress to act quickly.
House Speaker Nancy Pelosi (D-San Francisco) had strongly resisted using money from the technology fund but changed her mind after the government reported early Friday that 533,000 workers lost their jobs in November -- the worst monthly decline in 34 years.
Pelosi’s turnabout could be the key to keeping General Motors Corp. and Chrysler from running out of cash until March 31. (Ford Motor Co., which is on better financial footing, says it needs only a line of credit). But congressional aides cautioned that there were still details to be worked out. That includes getting a commitment from the White House to quickly replenish the energy fund, aides said.
“Congress is considering various short-term funding options for the American automobile industry,” Pelosi said Friday night. “We will not permit any funds to be borrowed from the advanced technology program unless there is a guarantee that those funds will be replenished in a matter of weeks so as not to delay that crucial initiative. Regardless of the source, all funding needs will be tightly targeted with vigorous supervision and guaranteed taxpayer protection.”
White House spokesman Tony Fratto said administration officials continued to talk with Congress and hoped to make progress this weekend. If a deal is finalized, Congress could vote early next week.
A deal to quickly provide a $14-billion bridge loan would avert the danger of imminent bankruptcy by GM or Chrysler, and possibly the failure of Ford, which relies on many of the same suppliers. It would also buy time for Congress to consider the industry’s future more carefully and for President-elect Barack Obama to take office.
The breakthrough followed a second day of congressional hearings in which auto executives again encountered resistance to their request for a $34-billion federal bailout. But most lawmakers agreed that something had to be done to help them, and the outlines of a compromise move began to take shape.
The chief executives testified Friday before the House Financial Services Committee, chaired by Rep. Barney Frank (D-Mass.).
Frank said the news that the economy lost 533,000 jobs in November helped solidify support for aiding the auto industry. He said after the hearing that he was more optimistic that Congress would act and was in discussions with House and Senate leaders about new legislation.
“So we’re not at a point of agreement, but with very few exceptions today the members were saying, ‘Yes, we should do something. We should not allow a collapse of these companies,’ ” he told reporters.
Frank endorsed a short-term fix to gird the automakers until Obama took office next month with larger Democratic majorities in the House and Senate.
Obama has said it is crucial to help the industry. The United Auto Workers union is also an ally, helping him win key Midwestern states in last month’s election.
“What we need to do is keep this alive until he becomes president,” Frank said.
Rep. Spencer Bachus (R-Ala.), the top Republican on Frank’s committee, said a short-term fix might get his vote, though he preferred a structured bankruptcy proceeding that he said would exert greater pressure on the companies to make changes.
“Personally, the only course I could possibly endorse would be limited transitional assistance to allow the American domestic automobile industry to return to solvency and profitability,” he said. “But then only if there’s a reasonable expectation of success.”
With time running out this year, another auto industry critic, Rep. Paul E. Kanjorski (D-Pa.), said short-term funding might be the only feasible move. He accused the CEOs of using that ticking clock to force Congress to provide the entire $34 billion or risk the fallout.
“This idea that it’s late, guys, and you’ve got to pass it, and you’ve got to do it or nothing, I’m afraid a lot of people are overestimating the willingness of a goodly number of members of Congress to play chicken,” Kanjorski said.
The auto industry leaders said they were open to the idea of stopgap aid.
“In the short term, at least from Chrysler’s perspective, we’re certainly open to whatever makes the most sense for Congress as far as making the bridge loan available to help us get through this trough,” Chrysler Chief Executive Robert Nardelli told the committee.
Nardelli and other Detroit executives argue they have already begun moving toward more environmentally friendly and fuel-efficient vehicles but are being pulled under by the recession and credit freeze.
The automakers submitted turnaround plans this week that detailed their needs.
Ford’s Alan Mulally said his company didn’t need short-term money but has requested a $9-billion line of credit to tap if economic conditions worsen.
But Chrysler says it needs $4 billion to make it to March 31 and confirmed Friday that it had retained an advisory firm to consider the option of bankruptcy, which it rejected. GM’s Rick Wagoner said his company needed $4 billion by year-end and an additional $6 billion by March 31.
“We’re here today because we’ve made mistakes that we’ve learned from, because forces beyond our control in the credit markets have pushed us to the brink, and most importantly because saving General Motors and all the company represents is a job worth doing,” Wagoner said.
Frank said the failure of the companies during the worst economic crisis since the Great Depression would be “an unmitigated disaster.”
Rep. Donald Manzullo (R-Ill.) said he thought there was broad support for using money from the advanced technology fund. But he and several other representatives criticized the executives for not proposing to do more to help auto dealers.
Kanjorski and two other committee members questioned why the government should aid Chrysler when its private equity owner, Cerberus Capital Management, isn’t willing to put additional money into the company.
Several lawmakers were skeptical the auto companies were committed to changing their big-spending, gas-guzzling ways. And some questioned why the automakers deserved taxpayer money over other businesses.
“Can you name me three industries in this economy that aren’t hurting that couldn’t use $34 billion?” said Rep. Jeb Hensarling (R-Texas).
Nardelli cited the auto industry’s broad reach in the economy, including its employees, dealers and suppliers.
“There’s about a million people depending on Chrysler’s success,” he said. A study by the Center for Automotive Research in Ann Arbor, Mich., estimated that nearly 3 million jobs would be lost if the three Detroit automakers failed.
Frank said the country couldn’t afford to punish the automakers for their mistakes.
“I think all of us remember in school, the teachers we hated most were the teachers who said if one person misbehaved, the whole class would get extra homework,” he said. “I don’t want to give the whole country extra homework because automobile executives in the past misbehaved.”
Times staff writer Richard Simon contributed to this report.