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The Baltimore Sun

WASHINGTON - With two of Detroit's Big Three automakers teetering near bankruptcy after the failure of a $14 billion bailout bill, the White House was preparing to step in with short-term aid to prevent what could be a catastrophic hit to the recession-weakened economy.

President George W. Bush and Treasury Secretary Henry M. Paulson Jr. were weighing their options yesterday should General Motors Corp. or Chrysler LLC slip closer to failure, although officials said action was unlikely to come this weekend. The White House said Bush was considering using money from the $700 billion Wall Street bailout fund - a U-turn from his earlier strong opposition to tapping money he said should be used only for financial institutions.

"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," White House spokeswoman Dana Perino said.

The announcement came after deep Republican opposition in the Senate killed a bailout bill negotiated by the White House and congressional Democratic leaders. The legislation, which passed the House on Wednesday, would have provided up to $14 billion in emergency government loans to GM and Chrysler.

The money would have come with strict restrictions, including undergoing major restructuring by March 31 under the oversight of a "car czar" appointed by the president. Bush administration officials could attach the same restrictions, or tougher ones, to money it provides.

The White House announcement came as the depths of GM's troubles became clearer. The company announced substantial production cuts through the first quarter of next year, reducing its vehicle output by about 30 percent, or 250,000 vehicles. It will do that by idling 20 plants, including three each in Canada and Mexico.

GM stock dropped 4.4 percent yesterday to $3.94, and Ford's rose 4.8 percent to $3.04. Chrysler is privately held.

News of possible help from Washington, delivered before the markets opened, tempered fears in Detroit. GM spokesman Tony Cervone said the company was "encouraged by the White House's willingness to consider other options."

But at Star Ford in Glendale, Calif., Kevin Gorman was worried about the auto industry.

"It seems like it's another sign that our country is in a recession," said Gorman, a retail sales manager for a shampoo store who was getting his Mustang serviced. He said a bailout would help the economy.

For some of the 1.2 million employees at auto dealerships nationwide, the failure of the bailout also stoked fears.

"Considering my job and things going for the worse, it's not good," said Javier Alvarez, assistant service manager at Star Chrysler/Jeep in Glendale. He said sales and service business at the dealership have dropped 30 percent to 40 percent this year.

Weak sales, caused by the recession and tight credit, have spread the troubles throughout the auto industry. Honda Motor Co., which saw its U.S. sales decline 32 percent in November compared with last year, said yesterday that it would deepen already announced cuts in first-quarter production, eliminating 175,000 cars and trucks from its lines.

But U.S. automakers - and the hundreds of thousands of direct and indirect jobs they provide - were the main concern of the Bush administration and lawmakers. A failure of one of Detroit's Big Three could take all of them down because of the interconnected supply chain, and cause the loss of hundreds of thousands of jobs.

Congressional Democratic leaders have pushed Bush to use the Wall Street fund to provide emergency aid to the automakers. He had adamantly resisted, preferring that Congress redirect money from an existing $25 billion fund to help automakers retool their factories to produce more energy-efficient vehicles.

But after legislative action failed, Bush changed his view.

General Motors has said it needed $4 billion by the end of the month and $6 billion more by March 31, and Chrysler also was asking for $4 billion in emergency loans to make it to the spring. Ford is not asking for short-term loans but has said a failure by GM or Chrysler would endanger it as well.

Bush was briefed on the legislation's failure late Thursday and was considering options in consultation with his economic advisers, Perino said.

"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 spokesman Brookly McLaughlin said.

Paulson could direct short-term loans from the fund and could attach conditions similar to those in the failed legislation or others the administration wanted to impose. The Bush administration could lend just enough money to get the automakers through late January, when President-elect Barack Obama takes office.

Obama has also called for helping the auto industry and said yesterday that he hoped Congress and the Bush administration "will still find a way to give the industry the temporary assistance it needs while demanding the long-term restructuring that is absolutely required."

Some Senate Republicans blamed the United Auto Workers for failing to agree to a key concession that would have drawn enough GOP support to pass the bailout bill. They also were angry with Bush for reversing his position on potentially using funds from the Troubled Asset Relief Program.

Republican Sen. Bob Corker of Tennessee, who played a leading role for GOP, said, "I think it being known that the White House at the end of the day would probably blink probably helped keep us from a deal," he said.

Sen. James M. Inhofe, an Oklahoma Republican, said, "As the Bush administration changes course once again, it is becoming clear to me that Washington, D.C., might be completely out of control."

But UAW President Ron Gettelfinger and auto industry supporters in Congress blamed Republicans, saying that the UAW was asked to make commitments that other stakeholders in the company were not. After agreeing to significant concessions on payments from the auto companies to a fund for retiree health care, the UAW balked at a demand that it agree to set a specific date for its wages to be competitive with U.S. workers for foreign automakers.

"The demand by the Senate GOP caucus would have no question treated workers differently from every other stakeholder, instead of leaving it to the 'auto czar' to work out the timetable and mechanism for implementing sacrifices by all of the stakeholders," Gettelfinger said.

Democratic supporters of the bailout welcomed Bush's decision to consider using money from the financial rescue fund and urged him to act quickly. Senate banking committee Chairman Christopher J. Dodd of Connecticut said he hoped for action this weekend. "I'm very confident ... that the White House will not allow this industry to collapse or go into an unplanned bankruptcy," he said.

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