Rescue collapses as Senate rejects aid for auto industry

Worker givebacks a sticking point; Congress 'unlikely' to reopen talks this year

David Shepardson and Gordon Trowbridge / Detroit News Washington Bureau

WASHINGTON -- Last-minute talks in Congress to save General Motors Corp. and Chrysler LLC from collapse fell apart late Thursday after Senate Republicans rejected a compromise $14 billion auto bailout deal.

Senate Majority Leader Harry Reid, D-Nev., called it "a loss for the country."

"I dread looking at Wall Street tomorrow," Reid said Thursday after the talks collapsed. "It's not going to be a pleasant sight. This is going to be a very bad Christmas for many people."

With GM and Chrysler in danger of collapse within weeks, their only chance for survival may be the Bush administration, which could tap the remains of the $700 billion Wall Street bailout package, something the White House has previously rejected. About $15 billion remains in the first $350 billion in the fund. Auto lobbyists said Thursday night that the Bush administration may seek to link funding for automakers to winning approval from Congress to spend the second $350 billion.

"The time has come for the president to use those funds to keep the auto industry alive," Sen. Kit Bond, R-Missouri, said.

White House spokesman Tony Fratto said President George W. Bush was considering his options.

"It's disappointing that Congress failed to act," he said. "We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable. We will evaluate our options in light of the breakdown in Congress."

"We do know they are on the edge," Sen. Carl Levin, D-Detroit, said of the automakers. "Plan B is the president."

Sen. Debbie Stabenow, D-Lansing, called the defeat "surreal."

"There are those who think they can play games with this," said Stabenow, who wiped away tears. "President Bush please use the authority you have to make sure we do not add another 2.5 million people to the unemployment rolls."

The key issue in the end was the role of the United Auto Workers, and whether the union would accept concessions demanded by Senate Republicans, including agreeing to wage parity with workers of foreign automakers in the United States by 2009. The UAW agreed to do it, but without a specific date.

"You can't make an honest economic argument that you're demanding parity in pay. What, Toyota's going to decide what the wages and benefits are?" Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, said in an interview. Dodd said the UAW agreed that parity would eventually take place. "This was an anti-labor move."

Automakers expressed deep disappointment. Chrysler spokeswoman Lori McTavish said the company "will continue to pursue a workable solution." GM said, "We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis."

The companies could still seek aid from the Federal Reserve, but the central bank has suggested the companies aren't eligible.

GM has hired a bankruptcy law firm as an adviser, a person familiar with the decision said.

Chrysler said it would meet with its suppliers today. "It is a meeting to keep them updated on our situation," spokeswoman Shawn Morgan said. Bond said Chrysler had told him that its suppliers may demand cash upfront as early as Monday. Directors at major suppliers have contacted Michigan's senators worried that they could be forced into bankruptcy if GM or Chrysler collapse.

Sen. Bob Corker, R-Tenn., had been leading GOP negotiations on the rescue package. After hours of talks, the negotiators broke while Corker took what had been agreed to so far to his Republican colleagues. "We were about three words away from a deal," Corker said.

Democrats said the fate of millions of workers was in danger.

Corker's original proposal demanded that the UAW accept wage and benefit rollbacks to reach par with workers at foreign automakers' factories. Democrats and the UAW strongly opposed the idea of specifying pay and benefit levels, but Republicans refused to accept Democratic counter-proposals. It required the UAW to accept company stock in exchange for more than $10 billion in money owed to pay for retiree health care in a trust fund that takes over in 2010. Stabenow said the UAW had agreed to make major concessions on health care.

GM, Chrysler and and Chrysler owner Cerberus Capital Management LP raced Thursday to cut a last-minute deal to save the bailout package from collapse, brokered by the White House and Democrats that the House passed Wednesday night.

GM had said it needed $4 billion this month and $4 billion next month to survive -- part of an $18 billion request for emergency aid. Chrysler had asked for $7 billion in loans and said it needed $4 billion to survive through March 31. Ford Motor Co. asked for a $9 billion "standby" line of credit but said this week it had no plans to seek immediate government loans.

Automakers have struggled as auto sales have collapsed, falling to a more than 15-year-low.

The Corker bill imposed far tougher conditions than what passed in the House -- including mandatory bankruptcy if GM and Chrysler didn't get specific concessions from key stakeholders by March. Lawmakers, the automakers and the UAW debated for hours in a Capitol Hill meeting room with Dodd, Corker and Sen. Richard Durbin, D-Ill, in attendance and the UAW's legislative director Alan Reuther. Also in attendance was Cerberus founder Steve Feinberg, who told The Detroit News during a break in talks that Cerberus was willing to give up any gains to win loans.

Ford's top lobbyists also were involved in the meeting. Early in the day, hopes an auto bailout could pass in the Senate dimmed when Minority Leader Mitch McConnell , R-Ky., said he would oppose the compromise deal worked out between the White House and Congressional Democrats.

"We simply cannot ask the American taxpayer to subsidize failure," he said on the Senate floor, saying the deal "isn't nearly tough enough."

"Even if we grant that these companies would fail without taxpayer help, we would still have to ask ourselves whether the proposal before us achieves the goal that everyone claims to embrace -- namely, the long-term viability of ailing car companies -- and, in my view, it does not."

The measure passed by the House creates a presidential appointee -- dubbed an auto czar -- who will hand out billions in loans and ensure that automakers complete detailed long-term restructuring plans by March 31. If automakers did not make satisfactory progress, the czar could call back the loans, which would force those companies into bankruptcy.

Corker's alternative required concessions up front. It have would required bondholders to accept 30 cents on the dollar to help reduce automakers' debt and force immediate wage concessions from auto workers, among other provisions.

One of the Detroit's Big Three defenders was Sen. Barbara Boxer, D-Calif., a regular critic of the automakers. She urged members on the floor to pass the emergency funds, noting that southern states like Tennessee and Mississippi have offered hundreds of millions of dollars in tax breaks to woo foreign auto plants. "Why don't I hear my colleagues from Tennessee or Mississippi out here saying 'Whoa that was a bad mistake. Taxpayers shouldn't be on the hook.' " Boxer said.

"Something's wrong. Is this about the workers because they are tough and they joined a union? What is this? It doesn't smell right."

The White House and President-elect Barack Obama urged action on Thursday.

Obama said the country cannot stand back and watch the auto industry collapse. "Doing so would lead to a devastating ripple effect throughout our economy," he said.

"The legislation in Congress right now is an important step in that direction, and I am hopeful that a final agreement can be reached this week."

A total of 205 House Democrats supported the bill, with just 20 voting no. A total of 150 Republicans opposed the bill, while 32 Republicans supported it-- including eight Michigan U.S. representatives, many from districts with significant auto operations. All Michigan Democrats supported the bill.

Rep. Joe Barton, R-Texas, who represents a district home to GM's Arlington assembly plant, was among those voting in favor. Outgoing Mich. Rep. Tim Walberg, R-Tipton, didn't vote.

GM's top lobbyist, Ken Cole, said Corker tried to be helpful getting a deal done. "This is an awfully difficult thing to do," Cole said.

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