Detroit Bailout: Democrats Toughen Up

Democrats are pushing for a bailout of the U.S. auto industry. Something that both management and unions can agree on

By David Kiley and David Welch

Efforts to get Republicans to join Democrats in approving new bailout loans to the U.S. auto industry appear to have hit a wall—on the eve of two days of hearings in Washington during which Detroit CEOs plan to make their case.

But that doesn't mean help isn't on the way. While congressional leaders and staffers said on Monday, Nov. 17, that a bill which would extend unemployment benefits and include $25 billion in loans carved out of the Wall Street bailout bill passed in October will be too difficult to pass, a combination of loans from another piece of legislation, plus an assist from the incoming Obama Administration, is the auto industry's best hope of staving off ruin.

The most likely scenario for aiding the struggling auto sector, said congressional staffers on Monday, is loosening the language on already passed energy legislation that will provide $25 billion in loans for automakers and suppliers to upgrade plants that are being converted to put more fuel-efficient vehicles into U.S. driveways. That money could be used to pay other bills and would be enough for General Motors (GM) and possibly Chrysler to stave off bankruptcy until the Obama Administration takes office in January, automakers and Democrats hope.

Flashing Signal

Obama has advocated using a portion of the $700 billion Wall Street bailout to make loans to the auto industry. The Bush White House and congressional Republicans have rejected that idea.

The Treasury Dept., though, has to request the second $350 billion in that legislation from Congress. On Monday, said congressional staffers, the Treasury signaled it may not request the money during the rest of President George W. Bush's term. That would allow Obama to green-light the auto rescue after he takes office. "It's still an uncertainty, but that is the signal from Treasury right now," says one Democratic House staffer.

Automakers aren't so choosy about how the money comes. General Motors CEO G. Richard Wagoner Jr., Ford (F) CEO Alan Mulally, and Chrysler CEO Bob Nardelli, as well as United Auto Workers President Ron Gettelfinger, are scheduled to be heard in front of the Senate Banking Committee on Tuesday, Nov. 18, and the House Financial Services Committee on Wednesday, Nov. 19.

The hearings are expected not only to make a case for need, but also to pitch reluctant lawmakers that Detroit has been significantly restructuring itself and deserves to be helped. "We have an education job on our hands," says Chris Paulitz, spokesman for Senator George Voinovich (R-Ohio), one of only two Republican Senators on record as backing the auto bailout. Paulitz noted that many in Congress "really aren't aware of what has been going on, and how close the companies are to right-sizing themselves and earning profit."

Green Concerns

Speaker of the House Nancy Pelosi (D-Calif.) has said she doesn't want to reword the language of the energy legislation passed in December 2007 that allocated funds to the automakers based on investment in more fuel-efficient cars and trucks. She's not alone. Senator Dianne Feinstein (D-Calif.) expresses a similar message on her Web site. But with a lack of votes to amend the Wall Street bailout to include automakers, both lawmakers and many others close to the green lobby could have to choose between their ties to environmentalists and labor, says one senior Washington lobbyist close to the discussions. "They will either have to vote against saving union jobs through a bailout or pull back on mandating that loan capital go to cleaner cars," said the lobbyist.