Auto Bailout Hung Up in the Senate

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Tarnished Cars

The White House disagrees with Senate Republicans who don't think the bill has enough muscle to force reform in Detroit. "The leverage is they have 90 days to make meaningful changes or the only alternative is Chapter 11," said White House Deputy Chief of Staff Joel Kaplan.

The automakers need their debt holders to take a substantial writedown on the bonds they hold, and to swap a substantial amount of debt for stock. Analysts and some members of Congress are also looking for the United Auto Workers union to take stock as half of the $21 billion payment that car companies owe it to cover future health care and benefits.

Automakers have insisted they need to avoid an actual Chapter 11 filing because customers will refuse to buy a car from a company in bankruptcy. "The lawmakers who believe that an automaker bankruptcy is the same as a steel company or airline are delusional," says independent marketing consultant Dennis Keene. "A Chapter 11 filing of one of these companies would move them quickly to liquidation."

The White House was successful Tuesday night in getting rid of a provision in the original bill that would have barred the automakers from continuing lawsuits that seek to block California and other states from enacting their own fuel economy and emission standards that are different from those passed by Congress.

On Tenterhooks Till January

That provision was one Speaker of the House Nancy Pelosi (D-Calif.) especially wanted. But she is expected to try and revisit that provision in the new Congress, which will likely have to authorize additional funds.

Legislative staffers said Wednesday they believed some package to help the automakers would pass, but couldn't predict when. "Either the Senate is going to take two whacks at this vote like they did with the Wall Street bailout, or it will have to wait until the next Congress in January," said one congressional aide.

The automakers are hanging on by strings. Chrysler, which has retained a bankruptcy law firm, projects it will be down to its minimum cash requirement by the New Year. General Motors said it needs an immediate infusion of $4 billion to avoid insolvency in January. Ford (F) says it has enough cash to last until 2010 unless total U.S. auto sales fall below most forecasts of 11 million next year. But a bankruptcy filing by Chrysler or GM, analysts warn, could also drag down Ford and hundreds of supplier companies because of the interdependence of the industry.

Business Exchange related topics:
Bailout
U.S. Automakers
U.S. Competitiveness

Kiley is a senior correspondent in BusinessWeek's Detroit bureau.