Treasury Dept. getting input from nation's banks before deciding whether to help struggling industry.
WASHINGTON -- Treasury Department officials are weighing the condition of the nation's banks before they loan money to General Motors Corp. and Chrysler LLC, possibly by Friday.
Treasury Secretary Henry Paulson said automakers would soon get emergency loans but the department is still asking detailed questions of automakers before it allocates any money from the $700 billion Troubled Asset Relief Program, or TARP. GM and Chrysler are seeking up to $15 billion in emergency aid to keep them afloat through the beginning of next year.
President Bush has signaled he'll provide money to the automakers and a decision is going to come soon.
The Treasury, however, wants to ensure that it has enough money in reserve so it can inject liquidity into banks in the remaining month the Bush Administration is in office.
"The autos will get the money as quickly as we can prudently do it," Paulson told CNBC.
Bush said Tuesday he was still considering "all options" to prevent a disorganized bankruptcy by automakers.
The Bush Administration plans to impose tough conditions -- including most of those worked out in a deal with congressional Democrats last week. They are weighing additional conditions.
"We're told that the (automakers) are teetering here or teetering there, and obviously (we're) taking in their concerns and taking in the concerns of all the stakeholders and we'll try to get this done in an expeditious way," Bush said.
The president said he didn't want to leave his successor with a serious economic crisis. "A disorganized bankruptcy could create enormous economic difficulties, further economic difficulties," Bush told CNN. "I feel a sense of obligation to my successor to make sure there is a not a huge economic crisis. Look, we're in a crisis now. We're in a huge recession, but I don't want to make it even worse."
Talks are continuing between automakers and the Treasury, which is planning to use a chunk of the remaining $15 billion left in the first $350 billion of the Troubled Asset Relief Program. The Bush Administration needs consent from Congress to tap the other $350 billion.
The Detroit News reported Tuesday the Treasury is leaning toward granting about $10 billion in loans to allow the two automakers to survive into February. Another option is to use money from the Wall Street rescue fund as collateral for emergency loans the Federal Reserve could grant. GM has $20 billion of unencumbered assets as well that could be used.
But Bush reiterated that automakers must change.
"I'm mindful of not putting good money after bad, so we're working through some options," he said. "What you don't want to do is spend a lot of taxpayers' money and then have the same old stuff happen again and again and again," Bush said. "We're working through some options."
But he said he had put aside his principles in agreeing to use the $700 billion Wall Street bailout. "I have made a decision to make sure the economy doesn't collapse. I've abandoned free-market principles to save the free market system."
A bill to provide the automakers with $14 billion in government aid died Thursday in the Senate, when Republicans blocked it over concerns about the size of wage concessions by the United Auto Workers.
The auto industry has been battered by a sharp downturn in the U.S. economy and a 16 percent drop in new car and truck sales this year. The credit squeeze and a shift from light trucks and SUVs, a longtime source of industry profits, to smaller cars and vehicles, has also hurt the companies.
GM, Ford and Chrysler have responded by slashing factory output and jobs, but all three companies still carry enormous overhead costs and other financial obligations. The industry's woes and the nation's economic troubles have also made it difficult for buyers, exacerbating problems for Detroit's automakers and forcing them to consider bankruptcy. GM and Chrysler have hired bankruptcy advisers in case they're forced to file Chapter 11.
The economic impact of a bankruptcy at Detroit's three automakers would cost the U.S. Treasury about $240 billion in fiscal years 2009 and 2010, said Mark Zandi, chief economist for Moody's Economy.com. "That makes the $14 billion request from GM and Chrysler appear insignificant by comparison," he said.
But he said the latest bailout package will not be enough, and policymakers are likely to be asked for more. The automakers sought $34 billion earlier this month in loans and government lines of credit. "The Big Three must make fundamental and ultimately very painful changes to justify more help from taxpayers and thus avoid bankruptcy," Zandi said.
"The U.S. government will likely provide immediate stop-gap financing to bridge the major American auto companies until a more complete agreement can be reached early in 2009," Moody's Investors Service auto analyst Bruce Clark said in a research report on Tuesday.
Clark said there is a 25 percent probability that a government bailout will stave off bankruptcy filings by GM and Chrysler, but a 70 percent probability that "a prepackaged bankruptcy filing coupled with government financial assistance will be needed to restructure."
Moody's and other analysts say a bankruptcy filing poses more downside risks than a bailout for both companies' ability to restructure and revive sales.
"The magnitude of loss (of market share) could be limited to a single digit percentage of market share. In other scenarios involving bankruptcy filings, market share loss would likely be more significant," Moody's said.
They also suggested there is a 5 percent chance of no government aid and a freefall bankruptcy.
GM bondholders are likely to recover more than 25 cents on the dollar as the automaker restructures its balance sheet, according to Moody's.
GM has sought $18 billion from the government, including $12 billion in loans and a $6 billion line of credit. Chrysler has sought $7 billion in loans.
Chrysler says it needs $4 billion to survive through March 31, while GM says it needs $4 billion this month and $4 billion next month.
In New York Stock Exchange trading Tuesday, GM shares closed up 4 percent to $4.25, up 17 cents. Chrysler is privately owned. Ford Motor Co., which has sought a stand-by $9 billion line of credit from the government, was off 5 cents to $3.13. Ford's president and CEO Alan Mulally said Tuesday that the company was still seeking the line of credit.
"None of us can predict the future. If it really degraded much more, I think it's important for the United States and the industry that we have access to it if we need it," Mulally said.
In a related matter, Citi said Tuesday it was reducing earnings targets for a majority of auto parts suppliers in response to a cut in vehicle sales estimates for this year and next year.
Citi said it expects North American light vehicle production to fall to 12.7 million vehicles from 12.9 million. Next year it estimates production at 10.8 million vehicles, down from 12 million. Citi expects U.S. sales of 13.5 million units this year and 10.9 million in 2009.
It also expects production in Europe to fall another 25 percent this year, and output to fall another 14 percent in 2009.
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