PRESIDENT GEORGE Bush has signalled that he is willing to extend a helping hand to America’s crippled auto industry by using some of the $700 billion of funds from the bank bailout bill to help the carmakers make it to the end of the year.
The abrupt change of tack from the White House came after a much-revised car industry bailout package was rejected by the Senate, a move that sent shares in General Motors, and Ford into a tailspin.
Even after the White House suggested it could help the carmakers, shares of General Motors were off almost 5 per cent in midday trading on Wall Street, while Ford was down 3 per cent. Chrysler is owned by Cerberus, a private equity company which is already in talks with bankruptcy specialists about the fate of its car concern.
The Senate rejection heaped yet more humiliation on the chief executives of the “Big Three”, especially GM’s Rick Wagoner who has already faced a volley of calls for his resignation.
The rejected bailout bill proposed offering some $14 billion of loans and aid to the struggling carmakers, a far cry from the $34 billion they asked for in November.
However a group of 10 hardline Republican senators rejected their pleas late on Thursday night amid fears that the money would be squandered on above-average hourly workers’ wages, pensions and benefits.
Mitch McConnell, the Republican leader of the senate, said: “We have had before us this whole question of the viability of the American automobile manufacturers.
“None of us wants to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves.
“The administration negotiated in good faith with the Democratic majority a proposal that was simply unacceptable to the vast majority of our side, because we thought it frankly wouldn’t work.”
Moments later, the Senate fell short of the 60 votes needed to bring up the auto rescue plan for consideration. The Senate voted 52 to 35, with 10 Republicans joining 40 Democrats and two independents in favour.
Before Wall Street opened for business yesterday, the White House released a carefully worded statement hinting at a potential bailout using funds from the $700 billion Troubled Asset Relief Program (Tarp), which was originally designed to help banks.
“Under normal economic conditions, we would prefer that markets determine the ultimate fate of private firms,” a spokeswoman for President Bush said. “However, 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.”
The US treasury department then indicated that it too would consider providing short-term relief to the automakers.
There remains some $15 billion of the first $350 billion tranche of Tarp funds made available by Congress. The Detroit carmakers are expected to spend much of the weekend locked in high-level talks with White House officials about how much of the cash they need.
David Cole, head of the Center for Automotive Research, a leading auto industry think-tank based in Detroit, who has been in close talks with senior executives from each of the so-called “Big Three” and their major suppliers in recent days, said the atmosphere in Detroit was “intense”.
“The challenge [for the carmakers] is to hold out until the next administration which starts on January 20th. From the initial signs we are hearing here, there is reason to hope that the White House will step in and provide the stop-gap the industry needs.”
