White House offers lifeline to automakers

Weekend talks to hammer out terms, amount

David Shepardson and Gordon Trowbridge / Detroit News Washington Bureau

WASHINGTON -- The Bush administration vowed Friday to prevent General Motors Corp. or Chrysler LLC from collapsing after the Senate blocked a $14 billion bailout, but determining the size and scope of a rescue will likely take days of intensive negotiations.

The White House and Treasury Department reversed course after weeks of opposing efforts to use remaining funds from the first $350 billion of the $700 billion Wall Street bailout to keep the two automakers from filing for bankruptcy.

Talks were held Friday among officials from Treasury, GM and Chrysler's parent company, Cerberus Capital Management LP, but no deal was reached. More talks were planned for today and Sunday by teleconference. GM's chief financial officer, Ray Young, is leading the talks for the automaker, in large measure because they focus on complex financial issues. A deal could come as early as Monday but it may take several more days.

President George W. Bush and Treasury Secretary Henry Paulson haven't decided how much of the $15 billion remaining in the Wall Street fund, known as the Troubled Assets Recovery Program, or TARP, they would use to help the automakers and what conditions they will demand.

The talks came as GM, underscoring its woes, announced another round of steep production cuts amid a weakening auto market. Treasury officials stepped in Friday with urgency to rescue GM and Chrysler after Congress fell short of a bailout agreement late Thursday.

"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," Treasury Department spokeswoman Brookly McLaughlin said.

White House spokeswoman Dana Perino said "it would be irresponsible" to allow the automakers to fail amid the nation's economic troubles. In November, the nation shed 533,000 jobs -- the highest monthly drop in 34 years.

Granholm knocks Congress

Congress' failure to approve a rescue package brought fierce denunciations on Friday. Gov. Jennifer Granholm called the defeat "un-American."

"The clock is ticking," she said. "Automakers are drowning."

Rep. John Dingell, D-Dearborn, blasted the decision of most Senate Republicans to vote against the bill. "Last night, some Southern senators kicked American workers in the gut," Dingell said. "Senators from states where the international automakers do considerable business unpatriotically blocked a bill."

Sen. Richard Shelby, R-Ala., a vocal critic of Detroit automakers, said he would have voted the same way even if the Big Three owned five plants in his state. He predicted the White House would intervene.

"I don't think President Bush is going to let anybody fail," Shelby told CNBC. "He just wants to get out of town."

GM and Chrysler have said they could be forced into bankruptcy by early next year without federal aid, and executives warn neither company could survive it, largely because they believe consumers won't buy cars from a bankrupt automaker.

GM said it needs $4 billion in government loans by Dec. 31 and another $4 billion in January, as part of an $18 billion emergency request. Chrysler said it needs $4 billion in government loans to survive until March 31, part of a $7 billion request. Ford Motor Co. asked for a $9 billion stand-by line of credit to tap if the market deteriorates but does not plan to immediately seek emergency loans.

Late Friday, Standard & Poor's Corp. warned that in the absence of a GM or Chrysler bailout, "the risk of default by one or both of these companies over the next few months remains very high."

Both companies could tumble into bankruptcy in early January, S&P said. "We believe the several billion dollars in outlays expected during the first few days of January 2009 could use up a substantial portion of both companies' respective cash balances, unless U.S. government support of some kind is forthcoming or the suppliers defer these payments," S&P said. The credit rating agency also said at least 15 suppliers could also be at risk of collapse.

"In addition, we believe concerns about bankruptcies have added to the declines in GM's and Chrysler's sales and therefore heightened their cash use," S&P said.

Ford could also be forced to burn through cash if it had to support suppliers in the event of a Chrysler or GM bankruptcy, the agency said.

House bill is a template

The White House and Treasury Department are likely to demand conditions similar to the bailout deal reached between the Bush administration and congressional Democrats that was passed by the House on Wednesday. That would include concessions from the United Auto Workers and bondholders, a ban on bonuses for top executives and submission by March 31 of a long-term restructuring plan that will lead to the automakers' long-term viability.

The administration's announcement, made just minutes before Wall Street opened Friday, sought to reassure investors after the Senate rejected an auto bailout bill because of a partisan dispute over hourly wages of UAW members.

GM and Chrysler have hired bankruptcy advisers, and Chrysler met with key suppliers Friday.

The bailout effort died on a procedural vote. Democrats needed 60 votes to end debate, but 52 senators supported the effort -- including 10 Republicans -- while 35 voted against it.

The White House had been planning for this possibility for more than two weeks. On Dec. 5, The Detroit News reported that the White House held high-level discussions with Cabinet departments about how the administration could aid automakers in the event Congress could not agree on providing funding.

Talks aimed at reaching a compromise agreeable to balking Senate Republicans failed on the question of whether the UAW would be forced to make steep wage and benefit cuts as soon as the end of 2009. The UAW had agreed to cuts after its contract expires in 2011. The union also agreed to a reduction in what it would have been paid in cash to fund an employee retiree health care trust fund.

UAW President Ron Gettelfinger on Friday accused GOP senators who opposed the bailout of trying "pierce the heart" of unions and urged Bush to act quickly.

Sen. Carl Levin, D-Detroit, said he was optimistic that any White House offer to the companies would require conditions along the lines of the measure that passed the House earlier this week. But some Republicans in Congress said Friday they were hoping any aid came with much tougher conditions similar to those in the failed Senate compromise. Commerce Secretary Carlos Gutierrez is also involved in the talks. President-elect Barack Obama's transition team was talking Friday with automakers and members of Michigan's congressional delegation.

"My hope is that the administration and the Congress will still find a way to give the industry the temporary assistance it needs while demanding the long-term restructuring that is absolutely required," Obama said.

GM welcomed Friday's developments. "We are encouraged by the White House's willingness to consider other options, including the TARP program, for immediate aid to the domestic auto industry," GM spokesman Greg Martin said.

Chrysler Chairman and CEO Robert Nardelli sent a message Friday morning to employees, saying the company was "pleased" with the White House announcement. He also asked workers to call or e-mail the White House asking the administration to act.

State buys cars to help

Granholm said she's doing her part to help the domestic automakers. She said she bought 300 shares of stock of a domestic auto stock for her three children for Christmas. "It's a great way to support the home team," she said, adding: "If you can get credit, buy an American car now."

The state of Michigan decided to advance order 1,600 cars for its 2009 fleet by the end of this year to boost sales of American cars. An order for 500 cars already has been made, state officials said.

House Speaker Nancy Pelosi, D-Calif., said in a letter to the White House on Friday that the Bush administration "must now require, as a condition of receiving those taxpayer funds, the same tough accountability and shared sacrifice by all parties -- executives, unions, suppliers, creditors, dealers, bondholders and shareholders -- mandated in the bipartisan legislation passed by the House this week."

The Michigan congressional delegation sent a letter to Bush, Paulson and Federal Reserve Board Chairman Ben Bernanke urging them to act.

There is one potentially bright spot for the Big Three in the failed bailout in Congress. Lawmakers had planned to tap a $25 billion Energy Department retooling fund to give them immediate aid. But the companies had applied for more than $16 billion in loans from that fund for future advanced projects. Now, they may still win funding for those projects if the emergency aid comes from the TARP program. But no funds from the Energy Department program will be released until next year -- in part because automakers must rework their applications.

GM stock, which fell as low as $2.61 earlier in the day, closed down about 5 percent at $3.92 a share in heavy trading. Ford closed at $3.05, up 5.2 percent.

Detroit News Staff Writer Gary Heinlein contributed to this report. You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com.