White House steps in to rescue car industry

The Bush administration declared it would step in and prevent the “precipitous collapse” of the US car industry and the hundreds of thousands of job losses sure to follow.

A day after the sudden demise of the €9.99bn rescue legislation in Congress, General Motors was talking to the government and the Federal Reserve about how car makers could still get the billions of dollars they say they need to survive.

The talks included conditions that manufacturers would have to meet, said GM spokesman Greg Martin.

The day after the collapse of emergency legislation in the Senate, administration officials said no decisions had been made on the size or duration of the new rescue plan, or what type of concessions, if any, would be demanded from the struggling automakers, their workers, stockholders or others.

In a reversal, the most likely option under consideration involved billions of dollars originally ticketed for the bailout of the financial industry. President George Bush had long declared that money off-limits to the beleaguered car makers.

General Motors and Chrysler have warned they are running out of cash and face bankruptcy without some form of assistance. Ford, which is in somewhat better shape financially, has been seeking access to a line of credit.

Underlining its difficulties, GM announced it would cut another 250,000 vehicles from its first-quarter production schedule, a third of its normal output, by temporarily closing 21 factories across North America. The move affects most plants in the US, Canada and Mexico. Many will be shut for all of January.

Urgent requests for White House intervention to save the car makers came from president-elect Barack Obama, Republican and Democratic members of Congress and outside groups.

The legislation died when Senate Republicans demanded upfront pay and benefit concessions from the United Auto Workers that union officials rejected.

“Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms,” White House press secretary Dana Perino said.

“Given the current weakened state of the US economy, we will consider other options if necessary including use of the TARP programme to prevent a collapse of troubled automakers.

“A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilise our economy at this time.”

TARP is the €517bn Troubled Assets Recovery Programme, the financial industry bailout plan enacted in October. All but €11.11bn of the first €258bn has been dedicated to troubled banks or insurance companies, and the Treasury Department is barred from dipping into the second €258bn without a formal notification of Congress.

No decision has been reached about such a notification, administration officials said. If one is made, Congress could then vote to prevent the action, but it would be unlikely to prevail in a showdown with the president.

Mr Obama, who will inherit the problem next month, even if bail-out billions are handed over in the meantime, said, “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.”

In a letter to Mr Bush, the leader of the House of Representatives, speaker Nancy Pelosi, urged the president to demand “the same tough accountability” and taxpayer protections from the car makers as was contained in legislation that cleared the House during the week.

It was unclear what role was left to politicians after an extraordinary week in which prospects for industry relief seemed to change by the hour.

A week ago, the government reported the loss of 533,000 jobs in November, the worst monthly showing in more than 30 years.

In the days between then and now, the White House and congressional Democrats agreed on a €9.9bn measure that would have extended short-term financing to the industry while establishing a powerful new “car tsar” to make sure the money was used to turn the car makers into competitive companies.

That bill passed the House on Wednesday but immediately ran into opposition from Senate Republicans who said it did not go far enough.

On Thursday, they demanded the United Auto Workers union agree to accept a lower pay and benefits package in line with compensation earned by workers at US factories producing cars for Japanese companies such as Honda, Toyota and Nissan.

In an unprecedented series of negotiations, politicians met representatives of industry and workers on the first floor of the Capitol in hopes of striking a deal – the effort that ultimately collapsed when the UAW balked at the terms demanded.