WASHINGTON — The Bush administration will weigh its options over the weekend, deciding how best to proceed with its promise to keep Detroit automakers out of bankruptcy.
The White House reluctantly said Friday that it would consider using money from October's controversial $700 billion Wall Street rescue fund to help ailing automakers, after Senate negotiations on a $14 billion rescue plan fell apart late Thursday night.
Before the New York Stock Exchange opened Friday, White House spokeswoman Dana Perino said that "Given the current weakened state of the U.S. economy, we will consider other options if necessary — including use of the TARP program — to prevent a collapse of troubled automakers."
For weeks, lawmakers and the White House have battled over the use of money from the Troubled Asset Relief Program. That rescue fund was designed to help stabilize the banking sector, but congressional Democrats have wanted to tap it for a bridge loan to Detroit's Big Three automakers.
That now appears more likely. The administration had insisted instead on using an energy-efficiency loan approved for the carmakers, but that option was lost with the failure of Senate negotiations.
Unless the administration provides loans, General Motors and/or Chrysler could file for bankruptcy by the end of the month.
"A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," Perino said.
The Treasury Department also promised Friday to help, but it didn't specify what options it has beyond the Troubled Asset Relief Program. Lawmakers have left the capital and thus can't vote on new spending now.
"We're gathering information," Brookly McLaughlin, a Treasury spokeswoman, said late Friday.
One option that's attracting interest is the possibility that the Federal Reserve might lend money directly to the automakers. Although the Fed regulates banks, it's gone outside its traditional operations in recent months under the guise of preventing systemic risk to the global financial system.
Fed Chairman Ben Bernanke, in a letter this week to Senate Banking Committee Chairman Christopher Dodd, D-Conn., said that existing law required the Fed to receive sufficient collateral for any emergency lending.
There's a precedent, since the 1979-80 federal bailout of Chrysler involved the carmaker offering its plants, inventory and land as collateral. Bernanke's letter wasn't viewed as supportive of the automakers, but some lawmakers think that the Fed could provide some form of loan.
In a news conference Friday afternoon, Dodd questioned why similar collateral requirements weren't required of insurance giant American International Group when it received $40 billion in additional loans after the government partially took it over in September.
Dodd said the Bush administration also could pressure the banks that it had lent to under the financial-markets bailout to issue bridge loans to the automakers.
"Treasury can go to them and say, `We provided you with $25 billion. We think you ought to step up and provide some help at this point,' " Dodd said.
In a statement, President-elect Barack Obama sounded a cautious note Friday morning:
"I share the frustration of so many about the decades of mismanagement in this industry that has helped deliver the current crisis. Those bad practices cannot be rewarded or continued. But I also know that millions of American jobs rely directly or indirectly on a viable auto industry, and that the beginnings of reform are at hand. The revival of our economy as a whole should not be a partisan issue."
The challenge for the Bush administration is crafting some sort of loan that helps General Motors and Chrysler survive until the new Congress with a strong Democratic majority takes up the issue. Ford has said that it isn't facing imminent bankruptcy, but it had hoped to win a federal line of credit as a safety net.
The Senate's refusal to pass the bailout, rooted in Republican objections to it, has added another threat to a very fragile U.S. economy. The national economy has been in recession for more than a year, and the Labor Department reported earlier this week that weekly jobless claims hit their highest level in 26 years for the week ending Dec. 6.
Many economists think that allowing any of the Big Three automakers to enter bankruptcy under the current economic conditions could prove catastrophic.
"Bankruptcy in the next few weeks or even months would completely undermine the already sliding economy. A near-term bankruptcy would result in a liquidation of much of the Big Three operations, bankruptcies at many of the suppliers and other vendors, and mass layoffs," said Mark Zandi, the chief economist for Moody's Economy.com, a forecaster in West Chester, Pa. "It's not hard to imagine over 1 million lost jobs in the first three months of 2009 if the Big Three fall into bankruptcy in the next few weeks."
Ron Gettelfinger, the president of the United Auto Workers union, also issued that warning Friday morning.
"If they go bankrupt, let me tell you they won't just go bankrupt, they will go into liquidation," Gettelfinger said in a televised news conference.
Industry analysts complained that lawmakers failed to see how integrated the North American auto manufacturers are, whether they're U.S.- or foreign-owned
"The whole problem is people don't understand the ripple effect . . . nobody is working in a vacuum here," said Rebecca Lindland, an automotive analyst for IHS Global Insight in Lexington, Mass. "You can't pull a company as big as GM out of the economy and not expect it to hurt the economy."
Automakers are in a punishing trap. Sales have plummeted amid a credit crisis that has banks unwilling to lend to consumers. The possibility of an auto industry bankruptcy may make people wary of purchasing GM or Chrysler vehicles because warranties and guarantees might not be honored. And if suppliers think that a carmaker is going to file for bankruptcy, they may withhold parts out of concern that they wouldn't be paid.
Earlier in the week, Chrysler said that it had hired bankruptcy consultants, and news reports Friday said that General Motors had done the same.
The congressional bailout died Thursday when Southern Republican senators, led by Tennessee's Bob Corker, insisted that UAW members immediately agree to the same low wages that workers are paid at U.S. plants, mostly in the South, owned by Toyota, Nissan and other foreign automakers. Nissan and Saturn have factories in Tennessee, and Volkswagen announced plans in July to build one near Corker's hometown of Chattanooga.
The UAW leadership agreed to that demand effective in 2011, when the current contract with the Detroit Three runs out, but Republican senators wanted a concession that involved pay cuts of up to 30 percent in 2009.
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