Published December 8, 2008

US car giants clear roadblock to their rescue

Legislation in final lap and may go before Congress today

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(WASHINGTON) US lawmakers worked over the weekend to hammer out details of legislation to bail out ailing car companies that could be presented to Congress as early as today, after reaching an agreement in principle with the Bush administration.
Ms Pelosi: Tapping into US$25b from Energy Dept fund now okay with her

The legislation is taking shape after House Speaker Nancy Pelosi dropped her opposition to drawing on US$25 billion in funds from the Energy Department intended to help carmakers develop more fuel-efficient vehicles, according to a Democratic aide who declined to be identified.

The chief executives of General Motors Corp and Chrysler LLC testified at hearings last week that they need a combined US$14 billion to keep operating through March 31.

To qualify for aid, carmakers must be prepared to make 'difficult decisions' to ensure their long-term viability, Dana Perino, the White House spokeswoman, said in a statement on Saturday.

The Bush administration has held 'constructive discussions' with members of Congress, Ms Perino said. 'We hope to continue to make progress towards assistance for the automakers', provided that public money can be safeguarded.

'Taxpayers should not be asked to finance assistance for automakers without a strong likelihood that they will be paid back,' Ms Perino said.

A draft proposal from the White House calls for the appointment of a 'financial viability adviser' in the Department of Commerce to work out terms of assistance to car companies. The adviser would be authorised to provide short-term loans to keep carmakers afloat during talks.

Senate Minority Leader Mitch McConnell, a Kentucky Republican, said on Saturday in a statement: 'I look forward to reviewing the legislation being drafted to address the difficulties in our auto markets. As we consider this legislation, our first priority must be to protect the hard-earned money of the American taxpayer.'

Democratic leaders in Congress and the Bush administration have been at odds for weeks over the source of money to help the industry.

Ms Pelosi, a California Democrat, had demanded that the Bush administration tap a US$700 billion bailout fund for the financial industry. President George Bush and congressional Republicans refused, saying that the money must come from the US$25 billion in Energy Department funds.

The breakthrough came when Ms Pelosi said that the Energy Department funds could be used to keep the carmakers operating, provided that the money would be 'replenished in a matter of weeks'.

The White House proposal calls for 'strong taxpayer protections' for agreements on longer-term financing for car companies. These include options for ownership stakes for the government, limits on compensation of senior executives and a suspension of dividends.

US President-elect Barack Obama said yesterday that the struggling US car industry could not be allowed to collapse, but that any bailout would require a complete restructuring.

'I don't think its an option to simply allow it to collapse,' Mr Obama said in a taped interview on NBC's Meet the Press programme. 'What we have to do is to provide them with assistance but that assistance is conditioned on them making significant adjustments. They are going to have to restructure and all of their stakeholders are going to have to restructure.'

Senator Bob Corker, a member of the Senate Banking, Housing, and Urban Affairs Committee, said on Saturday that he was disappointed with the draft of the plan being worked on between House Democrats and the White House.

'Based on the outline we've seen so far, we are disappointed,' he said in a statement. He proposes including conditions for bondholders and for the car unions and asks for wage parity with carmakers such as Nissan.

Ms Pelosi said that she expects to bring legislation to the floor this week to provide 'short-term and limited assistance' to the industry. She said that there would be strict oversight on the use of the funds. The House plans to return to work tomorrow and the Senate reconvenes today.

Ms Pelosi spoke directly with White House Chief of Staff Josh Bolten two days ago in an effort to resolve the issue.

The support of the White House is crucial since it removes the threat of a veto and will likely persuade many Senate Republicans to end their opposition. Some senators had argued that the companies should survive or fail on their own.

Nobel economics prize winner Paul Krugman said yesterday that the beleaguered US car industry will likely disappear.

'It will do so because of the geographical forces that me and my colleagues have discussed,' the Princeton University professor and New York Times columnist told reporters in Stockholm. 'It is no longer sustained by the current economy.' - Bloomberg, Reuters, AP