Feds weigh $10B in emergency auto aid

Loans would get GM, Chrysler through Feb.

David Shepardson / Detroit News Washington Bureau

WASHINGTON -- The Treasury Department is leaning toward granting General Motors Corp. and Chrysler LLC a loan package of roughly $10 billion that would allow them to survive into February, putting pressure on Congress to act to add funds.

Talks between the automakers and Treasury are continuing, but no announcement of a deal is expected until at least Wednesday. One auto official said Treasury is considering "a bridge to a bridge loan" rather than the full amount sought by automakers.

Sen. Chris Dodd, chairman of the Senate Banking Committee, told reporters in Ireland on Monday he expected the administration to act quickly but said any loans would allow the automakers to survive "basically into the first quarter."

The Treasury is considering using some or all of the remaining $15 billion of the first $350 billion of the $700 billion Wall Street rescue, the Troubled Asset Relief Program, to help GM and Chrysler avoid collapse.

GM says it needs $4 billion this month and $4 billion next month, while Chrysler says it needs $4 billion to stay alive through March 31.

Treasury Secretary Henry Paulson told Fox News on Monday that automakers wouldn't be allowed to fail.

"The president made a decision that he didn't want to see, we didn't want to see a failure of an auto company. So we're right now exploring the options, and we're evaluating the situation, and we're in the process of making some decisions," Paulson said.

It is likely Detroit's automakers will be back early next year to ask for more help, but they may have more options once President-elect Barack Obama takes office with a new Congress behind him.

When legislators convene in January, they will consider a broad stimulus package to boost the economy. Auto industry officials hope to see additional loans attached to that measure. Another option is they could urge Obama to tap the second $350 billion in TARP funds.

JP Morgan auto analyst Himanshu Patel said in a teleconference Monday that he expected the White House would come through with a bailout, but a deal might require more concessions from the United Auto Workers -- a move Senate Republicans had demanded last week but the union rejected.

In addition to TARP and the Federal Reserve, Patel said there were two other ways for GM to get or conserve cash: by getting guaranteed government loans made by banks that don't need all the TARP money they received -- a proposal floated by Dodd and two other senators -- or stop paying its bills on Jan. 2 while negotiations continue, as Chrysler did in 1979 without going into bankruptcy.

Patel said he found a high level of financial expertise among people at the Treasury. "The staff seems to be noticeably up to speed," he said.

He said bankruptcy is not a good option. "There's not been a successful precedent."

'A matter of weeks'

Lawmakers from auto states had hoped Congress would approve at least $25 billion in emergency loans for Detroit's Big Three.

But in plans they submitted to Congress, the automakers asked for $34 billion in loans and lines of credit. GM asked for $18 billion; Ford Motor Co. asked for a $9 billion stand-by line of credit; and Chrysler sought $7 billion.

"It's a matter of weeks before they absolutely must have the funds in hand," Sen. Carl Levin, D-Detroit, said Monday, adding that he thinks the conditions of the aid will be close to what was included in a bill hammered out by congressional Democrats and the White House that passed in the House on Dec. 10.

"It's more likely they will stick to the deal they made with the House," Levin said.

But critics still are being vocal.

South Carolina Gov. Mark Sanford said in a letter to President George W. Bush on Monday that aiding automakers would be a "very great mistake" and would "open the floodgates to federal monies for every distressed industry across this country -- and there will be many in this economic slowdown.

"We are at a tipping point in moving from a market-based economy to a politically based economy, wherein one's success can be determined not by good decisions and hard work, but by the size of one's voice and connection to Washington," he wrote.

Nonetheless, Vice President Dick Cheney reiterated Monday the administration planned to lend money, warning the failure of automakers would be a "major shock to the system."

"We're on the downside of a recession that may be the worst since World War II. And if the automobile industry goes belly-up now, there's a deep concern that that would be a major shock to the system," Cheney told radio talk show host Rush Limbaugh, adding the administration's response "might be different under different economic circumstances."

Compromise blocked

Senate Republicans last week blocked the compromise bill brokered between the White House and congressional Democrats that would have given automakers $14 billion in loans by tapping an Energy Department factory retooling program to help automakers make fuel-efficient vehicles.

Senate Republicans and the UAW couldn't agree on a timetable for concessions on hourly wages and benefits.

That deal required automakers to file long-term restructuring plans that showed a path to long-term viability. They also had to grant the government stock warrants worth 20 percent of the loans. Chrysler's parent, Cerberus Capital Management LP, would have to give the government warrants in Cerberus, not Chrysler. The bill also barred the automakers from using corporate aircraft, and paying dividends to shareholders and bonuses to executives. All parties agreed that a presidential appointee, dubbed an auto czar, would oversee any deal.

Levin said Paulson would "in effect" serve as the auto czar under a rescue plan brokered with the administration.

The Treasury said it was still in talks on Monday.

"We continue to assess and review the information that we have received from the automakers and are providing the White House with regular briefings on our thinking, Treasury spokeswoman Brookly McLaughlin said.

"No decisions have been made."

Treasury officials have been poring over the books of GM and Chrysler and asking questions about the companies' restructuring plans.

They are also deciding what conditions to impose on the funds and are expected to include most that were part of the compromise bill. They are considering various scenarios, funding levels and other options, people familiar with the talks said.

There's "nothing new to report," White House spokesman Tony Fratto said Monday. "We're reviewing automakers' financial information, considering our policy options, and when we have something to announce, we'll announce it."

Bush told reporters Sunday that a decision would be made soon to prevent a "disorderly bankruptcy."

"This will not be a long process because of the economic fragility of the autos," Bush said.

Detroit News Staff Writers Christine Tierney and Alisa Priddle contributed. You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com.