President Bush indicates he won't let the auto companies collapse. Treasury may tide Detroit over with remaining bank-bailout funds
The White House and Treasury Dept. said they are likely to help U.S. automakers avert bankruptcy after Republican senators defeated a bill late Thursday, Dec. 11, that would have provided $14 billion in taxpayer loans to the companies.
Members of Congress and auto executives were meeting all day Friday with White House officials to determine how much money will be released to General Motors (GM) and Chrysler, and on what timetable. Also, the Treasury, sources said, was also working out what oversight rules will be needed as part of the rescue package, and the other conditions the automakers and the auto-workers' union will have to meet. GM and Chrysler are known to be close to reaching their minimum levels of cash needed to sustain their operations.
For weeks, Democratic senators have called on the White House to use some of the $700 billion Wall Street bailout fund to make loans to GM and Chrysler, and to provide a line of credit to Ford (F), which is not in as dire financial shape as its two rivals. But the White House told Congress the fund was not created for industries outside of banks and financial-services companies.
After the auto-rescue bill died in the Senate following weeks of data indicating rising unemployment, however, the White House changed course. Another factor was the further decline in stock prices Friday morning, which analysts attributed to the likely bankruptcy of General Motors and Chrysler.
"Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," said Treasury spokeswoman Brookly McLaughlin.
The Treasury Dept. has about $15 billion of uncommitted funds left from the first $350 billion round of the Troubled Assets Relief Program, or TARP, authorized by Congress. That means it could cover the immediate needs of the auto companies without having to go to Congress. GM has said it needs $4 billion this month to keep paying its bills, and $12 billion total to get through to March.
A Breakdown over Wages?
Senate Minority Leader Mitch McConnell (R-Ky.) and Senator Bob Corker (R-Tenn.) said Thursday night on the Senate floor that negotiations broke down over the United Auto Workers' unwillingness to agree to a date for certain active workers' wages and benefits to be cut to match those of workers at non-union auto factories in the U.S., such as those of Toyota (TM) and Honda (HMC).
Senator Corker, who acted as a broker between the Republican caucus and the UAW and automakers, said Friday: "I feel a sense of surrealness today that we came so close to what would have been a landmark agreement."
Corker said he had asked the UAW to agree to language that would have made labor costs "competitive" with foreign-owned plants, and the definition would have been certified by the next Labor Secretary. Democratic senators would not have supported the language unless the UAW agreed to it.
UAW President Ron Gettelfinger on Friday took issue with the characterization that the talks broke down because of wages. "The wages discussions were about politics in the Republican caucus," said the union leader. Gettelfinger said he didn't want to get pinned down to specific language in the bill over "parity" or "competitiveness" because comparisons between Detroit and foreign automakers are complicated by the benefits held by the vast pool of union retirees.
Even if the union gave in, Corker may not have been able to get the deal passed. There may have been too much opposition no matter what the union was willing to do. "Corker couldn't deliver the Senate even if the UAW agreed," said Rep. Thaddeus McCotter (R-Mich.)
The union, in negotiations with Corker on Thursday, agreed to take half of $21 billion of future health-care and benefit payments owed to it by the automakers in stock rather than cash. And they agreed to negotiate wage "competitiveness" over the next three months. Big investors and banks that hold automakers' bonds also agreed to accept a 70% writedown on the face value of their investments, and to take half of the rest in stock.
The bill language gave authority to a government-appointed "car czar," who would have had to certify the financial "viability" of the automakers by Mar. 31, including wage competitiveness. But Republican senators wanted specific language in the bill to address labor. Gettelfinger said that tactic was designed to "pierce the heart of organized labor."
Corker, despite his freshman status in the Senate, emerged as a major player in negotiations during the past three weeks as he came to favor a government-facilitated restructuring of the automakers instead of having them reorganize under Chapter 11 bankruptcy.
Corker encouraged Treasury Secretary Henry Paulson to adopt as much of the framework of the Senate bill as possible in granting the automakers some of the Wall Street bailout funds. "What we put forth in the bill, and nearly got a deal on, were loan covenants that the Treasury Secretary could adopt by fiat," said the senator.
Details of how Treasury may help the automakers are expected to emerge over the next few days.
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