Congress, White House zero in on plan to aid automakers

$15B in emergency loans in the works; House could vote next week

David Shepardson Gordon Trowbridge and Christine Tierney / Detroit News Washington Bureau

WASHINGTON -- In a move that could save General Motors Corp. and Chrysler LLC from imminent collapse, the White House and Congressional Democrats neared an agreement on a $15 billion compromise short-term aid program for Detroit's Big Three automakers, two congressional aides said late Friday.

The breakthrough came after House Speaker Nancy Pelosi, D-Calif., dropped her insistence that any aid come from the $700 billion Wall Street rescue program and agreed to tap a Department of Energy loan program intended for retooling factories to develop advanced fuel-efficient vehicles. GM and Chrysler could instead use the money to survive as they undergo significant restructuring in the next three months.

The key factor in breaking a month-long logjam over whether to help the automakers and where to get the money was growing worry about the U.S. economy and the seismic effect on employment if the automakers failed.

On Friday, the Labor Department said the nation shed an alarming 533,000 jobs in November, the largest monthly increase in unemployment since 1974, bolstering the case for help. As many as 3 million jobs could be lost within a year if Detroit's Big Three collapse, according to some estimates. Hundreds of auto suppliers and thousands of dealers would be affected.

President George W. Bush also joined the fray Friday, urging Congress to pass emergency aid next week using the Energy Department money, saying he was worried the companies wouldn't survive.

Progress toward a deal gained momentum after the chief executives of the Big Three appeared before Congress on Thursday and Friday, their second appeal for aid in a month.

They are seeking a $34 billion bailout. GM needs $4 billion by the end of the year to survive through January as part of its request for $18 billion. Chrysler needs $4 billion to stay afloat until March 31. Ford Motor Co. did not ask for immediate aid but requested a $9 billion "stand-by" line of credit to tap if the economy worsens.

Senate Majority Leader Harry Reid, D-Nev., said Congress had to act. "This week's hearings have made clear that we cannot let these companies fail," said Reid, noting that the Senate needs Republican support for a deal. "We cannot afford the risks of these companies going bankrupt when our economy already faces the highest job loss in a generation and we are a year into a devastating recession."

Talks were planned throughout the weekend to write terms for the aid, including an oversight mechanism for the money. Some favor a single overseer -- similar to a court-appointed trustee -- while others want an oversight board like the group that oversaw the 1979-80 Chrysler bailout.

Automakers will have to agree to strict limits on executive compensation and a ban on using the loans to pay dividends. Congress may impose other restructuring requirements to try to ensure the companies become profitable.

Automakers also will have to give the government stock warrants in exchange for the loans under the deal being discussed, similar to what banks were required to offer the government in exchange for funds.

GM and Chrysler indicated in the hearings this week that they would agree to dramatic concessions if necessary to get aid, including filing for bankruptcy if they received government help and didn't secure needed cost savings by March 31. The short-term plan could require them to show progress on their restructuring to receive additional money from Congress next year.

The White House sent Congress a written summary of its proposal late Friday, congressional aides said. Pelosi informed key congressional leaders of her decision in a conference call late Friday afternoon that included Reid; Senate Banking Committee Chairman Chris Dodd, D-Conn.; and Barney Frank, D-Mass., chairman of the House Financial Services Committee, aides said. Frank's and Dodd's staffers will spend the weekend writing a bill that's acceptable to the White House and Republicans. Votes could come as early as Tuesday or Wednesday.

Pelosi spoke with White House Chief of Staff Josh Bolten late Friday to reach a compromise.

"Congress must work on a bipartisan basis to provide short-term and limited assistance to the automobile industry while it undertakes major restructuring," Pelosi said in a statement Friday.

She agreed to allow the Energy Department retooling funds to be used as long as the money "will be replenished in a matter of weeks so as not to delay that crucial initiative," she said in a second statement as progress toward a deal accelerated. "Regardless of the source, all funding needs will be tightly targeted with vigorous supervision and guaranteed taxpayer protection."

The retooling program was funded for $25 billion but only $15 billion would be available for the short-term aid because of the increased risk of default by automakers, according to a new analysis by the Congressional budget office.

Bush said the retooling money could be "used so long as the companies make hard choices on all aspects of their businesses to prove that they cannot only survive but thrive."

Automakers reacted with caution to news a deal was near."We appreciate Speaker Pelosi, Leader Reid and the Congress' urgent attention and willingness to act next week on a solution that will preserve jobs and protect the taxpayers' interests," GM spokesman Greg Martin said.

Ford was "encouraged by Speaker's Pelosi's statement."

Chrysler was hopeful because "it appears we are making progress," the company said in a statement. "We will continue to work with Congress and the Administration on this important issue to ensure the future viability of our company."

Frank, chairman of the House Financial Services Committee, which held a hearing Friday, said that a consensus was emerging for Congress to act.

"For us to do nothing," he said, "to allow bankruptcies and failures in one, two or three of these companies in the midst of the worst credit crisis and the worst unemployment situation that we've had in 70 years would be a disaster."During the hearing, GM Chairman and CEO Rick Wagoner said bankruptcy would be "a horrible waste," evident in the billions spent on green technologies that would not come to fruition and the losses for people whose livelihoods depend on the auto companies.

Dealers across the nation also would be hurt. Chrysler CEO Robert Nardelli told lawmakers Friday that more than 240 Chrysler dealers have gone bankrupt this year and another 250 are at risk -- representing 63,000 annual vehicle sales.

The White House and Congress have long been at odds over what funds to tap to aid automakers: The Wall Street fund or the Energy Department loans.

Rep. Paul Kanjorski, D-Pa., said the dispute over which pot of money to use was ridiculous.

"This is some sort of manliness fight between the Executive Branch of government and the Congress and 3 million people's jobs, thousands of businesses and three of our major auto manufacturers are the ones that are going to pay a terrible price," Kanjorski said. "What the American people ought to do is get on the telephone and say, 'Cut this out, kids. Get down and act like adults. Get this resolved.' "

Rep. Thaddeus McCotter, R-Livonia, offered a compromise to take half the money from the Wall Street bailout and half from the retooling program. But even getting the money doesn't end the downsizing, he said.

"We in southeast Michigan know we're going to continue the painful restructuring rather than going bankrupt and losing everything," he said.

United Auto Workers President Ron Gettelfinger said Friday that the union had made repeated sacrifices to help get a deal done.

"This is about survival," he said. "We can't sugarcoat it. We can't stick our heads in the sand."

You can reach David Shepardson at (202) 662 -8735 or dshepardson@detnews.com.