Push for US auto bailout deal

01:43, Jan 31 2009

The White House has demanded greater assurances about the viability of US automakers before it would agree to a Democratic proposal for US$15 (NZ$28) billion in short-term loans for the wounded corporate giants.

The administration also opposed a Democratic bid to force automakers to drop lawsuits against California and other states seeking to cut tailpipe pollution, Democrats said.

Regardless, Democrats trying to cut an elusive deal with the administration said they remained hopeful an agreement would soon be reached and passed by Congress, perhaps by week's end.

"Progress is being made," said Nancy Pelosi, speaker of the US House of Representatives and a California Democrat.

"We're still working through a number of issues, some of them just small and technical and other ones a little bit more meaty," said White House press secretary Dana Perino

"There will not be long-term financing if they cannot prove long-term viability," she said, although the White House and some Republican allies have not specified what sort of assurances they seek.

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"We need to keep moving forward," said Senate Majority Leader Harry Reid, a Nevada Democrat who has preached the need to safeguard a century-old industry that has long been a centerpiece of the now-ailing US economy.

The Democratic measure is designed to allow General Motors Corp. and Chrysler LLC to avert bankruptcy through March with short-term loans. Ford Motor Co. has requested an emergency line of credit of up to $9 billion.

Senate Republican leader Mitch McConnell, a Kentucky Republican, complained that the Democrat draft "fails to assure taxpayers. . . that they will not be asked to shell out billions more a few years or even a few months from now."

A day after Democrats offered their draft proposal, a handful of issues had yet to be resolved despite earlier hopes that a vote by Congress would come as early as on Tuesday.

One of these issues was Democratic demands that automakers drop lawsuits against states seeking to force them to comply with tougher emission standards.

In addition to providing US$15 billion in loans, the Democratic proposal would force automakers to answer to a "car czar" and make the government their biggest shareholder.

That official would have powers to shape a restructuring of the companies, withholding further loans if progress toward a turnaround stalled.

Pelosi said a "car czar" could be named as this week if a deal is reached and approved by Congress. She suggested a possible choice of former Federal Reserve Chairman Paul Volcker.

Democrats control Congress and are expected to push a bill through the House. But they may run into trouble in the 100-member Senate where Republicans could raise a roadblock that would take 60 votes to clear.

A top Republican aide, who earlier this week predicted passage of such a measure, voiced caution, saying a number of Republicans would want a chance to amend the bill.

"It's not going to be a dunk," the aide said. "Democrats are going to have to be careful about dropping a bill on us without allowing an amendment or two."

With President-elect Barack Obama having recently resigned from his Senate seat, Democrats hold the chamber 50-49. Democrats figure at least a few Democrats may oppose a bailout and they will need 12 to 15 Republicans to get the 60 votes to move toward passage of a bill, a senior aide said.

An auto bailout has evoked competing emotions in Congress.

Lawmakers fear if automakers collapse, it would deepen the US recession. But many say market forces, not a government saddled with a record deficit, should determine their fate.

There is also reluctance to provide another federal rescue in wake of the voter backlash against Congress for its passage of a US$700 billion bailout for Wall Street in October.

At the same time, many argue that if Congress provided relief for millionaires in the US financial industry, it should also help blue-collar autoworkers facing unemployment.

Automakers have had powerful friends in Congress over the years who have shielded them from adopting costly and stricter fuel efficiency standards.

But they also had critics who complained automakers were led by poor executives who stuck to producing gas-guzzling vehicles unable to compete with smaller, foreign-made ones.

A poll by CBS News conducted last week found Americans split on whether taxpayer funds should help automakers.

But more than 65 percent said in exchange for any aid, the government should have a say in the automakers' management and require more fuel-efficient cars.

The rescue plan would grant the government the right to acquire preferred shares, or the economic equivalent, equal to 20 percent of the amount loaned.

At GM, that could mean the government would end up with half of the equity in the top US automaker before factoring in any new shares the company would issue as part of an effort to cut debt by US$30 billion, analysts said.

Shares of GM and Ford rose more than 20 percent on Monday on prospects for a rescue deal but gave back some of those gains on Tuesday as they dropped about 4½ percent. Chrysler is owned by private equity firm Cerberus Capital Management.

 

Reuters