Billions for Auto Suppliers' Bailout

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"Regardless of the merits, Treasury's decision to provide up to $5 billion to auto parts suppliers flies in the face of what they told us they would do in January—provide aid to GM and Chrysler and only for comprehensive restructuring," said Corker. "While most of us on Capitol Hill are very concerned about the supplier base, this is a violation of trust and another sleight of hand by this Administration which will make it very difficult for them to win congressional support at a time when they really need it. The Administration needs to work with Congress instead of running the country by executive fiat without checks and balances on the use of taxpayer money."

Deadline Approaching

GM and Chrysler, which jointly account for about 30% of the auto industry, are facing a Mar. 31 deadline to demonstrate to the White House that their restructuring plans are in place and sufficient to continue as going concerns if they receive additional federal loans. GM has already received $13.4 billion and is seeking $16.6 billion more. Chrysler has received $4 billion and is seeking $5 billion more. Many analysts and critics of the auto industry loan program, though, believe the companies will be back for more loans later this year.

In GM's case, the government is looking for the United Auto Workers to take half of the $20 billion GM owes in health-care trust payments in GM stock. And it is looking for GM bondholders to take a 66% "haircut" on the face value of $31.5 billion in debt they are holding. The automakers have been in negotiations with both the union and bondholders, but no agreements have been reached.

The Obama Administration's stance toward further loans for GM and Chrysler seems to have been affected by voter/consumer bailout fatigue. Despite the progress the companies have made in restructuring their operations, and the transparency of their finances compared with insurance giant AIG (AIG) or Merrill Lynch, public sentiment has been against a big bailout for automakers since last fall when the companies first went to Capitol Hill to ask for taxpayer loans.

Additionally, there is worry that GM in particular will take on so much government debt that it will never get out from under it unless the company is radically restructured under Chapter 11. One of the scenarios being looked at by the White House task force, according to sources, is how the effects of a GM bankruptcy on auto suppliers, Chrysler, and Ford could be minimized should one be necessary.

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