Government Finds It Difficult to Deny Aid to Detroit in Wake of Wall Street Rescue
The auto-industry crisis is forcing a broader debate over how far the government should go to prop up ailing industries, as the Bush administration resists Democrats' request to use part of the $700 billion financial-rescue fund to aid Detroit's three struggling car makers.
House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada, in a letter Saturday, formally requested that Treasury Secretary Henry Paulson consider giving "temporary assistance to the auto industry" using money originally appropriated to shore up the banking system.
The Democratic lawmakers said federal aid should come with "strong conditions," such as requirements that car makers build more fuel-efficient vehicles, and equity stakes for the government so taxpayers could profit if the companies recover.
Senior economic advisers to President-elect Barack Obama said he broadly backs the appeal by Mrs. Pelosi and Mr. Reid on behalf of the auto industry. Mr. Obama, who on Friday called the industry "the backbone of American manufacturing," is scheduled to meet President George W. Bush at the White House Monday.
Rahm Emanuel, chief of staff for Mr. Obama, said Sunday on ABC's "This Week" that Mr. Obama wants the government to move faster to release $25 billion of low-cost federal loans already approved for the auto industry. He said the Bush administration has other authorities it should "use at this immediate time," but didn't specifically call on it to tap financial-rescue funds to help Detroit.
So far, the administration has balked at pleas from auto makers and their allies on Capitol Hill to use money from the Treasury's Troubled Assets Relief Program, or TARP, to help companies outside the financial sector.
"It was not set up for anything else," said Bush spokesman Tony Fratto. He said the only assistance authorized by Congress for the auto industry is a $25 billion loan package meant to help the industry retool to meet higher fuel-economy standards.
Auto-industry executives and the UAW president seek more federal money, putting lawmakers on the spot after their move to rescue Wall Street.
Auto-industry officials and allies are concerned that the rules governing the retooling loans are too strict, requiring that companies accepting the money meet standards of "viability" -- which might exclude money-losing General Motors Corp., Ford Motor Co. and Chrysler LLC.
GM warned Friday that it might not have enough cash to operate its business by the middle of 2009. Tapping into the $700 billion would be the fastest way to inject government cash into the sector, since doing so wouldn't require action by Congress.
Aides said Mr. Obama's economic-transition team is looking into a more flexible definition of "viability" for the $25 billion program.
The push by the Detroit Three for more federal money underscores a bigger problem that will confront the Obama administration and Congress: After riding to Wall Street's rescue, the government could find it hard to refuse other industries seen as teetering on collapse.
Detroit auto executives told top lawmakers last week that the collapse of one or more of their companies would have economywide consequences, putting as many as three million jobs at risk.
Democratic leaders want to convene a lame-duck session of Congress in two weeks to begin dealing with the nation's economic challenges.
Mrs. Pelosi has suggested a short-term stimulus package of as much as $100 billion, including spending for road and bridge projects, extended jobless benefits, funds to help states cover Medicaid costs and food assistance for low-income families. An auto-industry bailout could be added to the stimulus package, or moved separately.
But the Democratic leadership is waiting for a signal from the White House that Mr. Bush would sign a new stimulus bill.
Aside from questions about the wisdom of government intervention or putting taxpayer money at risk, bailing out Detroit could put Washington in the position of subsidizing job losses. The car makers have at least 10 assembly plants more than they need to meet demand, according to Oliver Wyman Consulting. That translates to roughly 30,000 factory jobs plus significant numbers of engineers and other salaried personnel. GM estimates it needs to slash its salaried-employee costs in North America by 30%.
Car makers would likely use federal money to subsidize these job cuts, buying out older workers to make room for new, lower paid replacements.
United Auto Workers President Ron Gettelfinger has said more union concessions are out of the question, union lobbyist Alan Reuther said in an interview with Dow Jones Newswires on Friday. "We feel we've already stepped up" by giving ground last year on future workers' pay and benefits and retiree health care, Mr. Reuther said. The UAW wants assurances a bailout would help secure its members' retirement and health-care benefits.
-----------------------------------------------------------------------------------------------------
This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your Car Lease, please visit www.leasetrader.com.
This story posted by LeaseTrader.com, the automotive service company that lets people transfer out of their Car Leases early. If you're looking to swap a lease or transfer out of your car lease, please visit www.leasetrader.com