Wall St. bailout targeted for Big 3

Bush, in flip, eyes $700B bailout to rescue GM, Chrysler.

By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 12, 2008: 10:28 AM ET


NEW YORK (CNNMoney.com) -- The Bush administration said Friday that it will consider using the money set aside to help banks and Wall Street to rescue the auto industry.

The statement -- a change in the administration's long-held position -- might be the last best chance to keep troubled automakers General Motors (GM, Fortune 500) and Chrysler LLC out of bankruptcy.

The defeat of a $14 billion bailout plan in the Senate late Thursday left the administration little choice but to tap the $700 billion bailout approved by Congress in October, the Troubled Asset Relief Program or TARP, according to White House Press Secretary Dana Perino.

"Given the current weakened state of the U.S. economy, we will consider other options if necessary -- including use of the TARP program -- to prevent a collapse of troubled automakers," Perino said in a statement. "A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time."

Talking to reporters after the release of the statement, Perino said that President Bush had met with aides Friday morning to discuss options. She also said any help would would be short-term in nature.

The Treasury Department, which controls the TARP fund, also said it was looking at using the remaining money as stopgap help for the automakers.

"Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," Treasury said in a statement Friday.

General Motors said that it is encouraged by the administration's statements.

"We are prepared to work closely with the administration on possible solutions that could prevent further damage to our nation's economy and also allow us to embark on an aggressive restructuring plan for long term viability," GM said in a statement.

Chrysler did not have an immediate comment, but at a press conference Friday morning, United Auto Workers union President Ron Gettelfinger, a strong advocate of a bailout, said the union appreciated the administration's statements.

GM has warned that it needs $4 billion by the end of the month or else it will run out of the money it needs to continue to operate. It said it'll need an additional $6 billion in the first two months of 2009. Chrysler said it needs $4 billion early next year.

Ford Motor (F, Fortune 500) has more cash on hand despite ongoing losses there as well. So it is not expected to tap into funds in the near term. But it has said it might need money later in 2009 if auto sales do not improve.

The Bush administration and congressional Democrats agreed earlier this week to use funds originally set aside to help the auto industry start producing more fuel efficient cars to fund $14 billion in loans.

But while the measure passed the House Wednesday night, Republican opposition in the Senate kept it from winning the 60 votes it needed to bring the matter up for a vote.

The Bush administration on Thursday had threatened Senate Republican opponents of the measure that failure of the bill would leave the administration no choice but to release the TARP funds, congressional aides told CNN.

After the vote Thursday night, several Democrats, including Senate Majority Leader Harry Reid, urged Treasury Secretary Henry Paulson to release the funds he controls as early as Friday.

The legislation, which had the support of the Bush administration and congressional Democrats, would have placed a number of conditions on the loan. It would have established a so-called car czar to oversee automakers' efforts trying to win concessions from creditors and unions. It also would have allowed the government to call the loans if the companies failed to make progress.

It was not clear what conditions, if any, would be imposed on any loans made to the automakers from TARP.

While Congress approved a $700 billion TARP in October, only half of that money was immediately available without an additional authorization from Congress. And of that first $350 billion, there was only $15 billion of TARP funds not already allocated to the nation's banks.

Republican critics of a bailout have argued that the automakers should use the bankruptcy process to shed debt and provisions of its labor contracts the companies can no longer afford, the way companies in other troubled industries, such as airlines and steelmaking, have done in the past.

But the automakers argued that bankruptcy is not an option for them. They say consumers will not buy cars from a bankrupt automaker because of concerns about the warranties and the resale value of the cars if the company goes out of business. And they point out that companies that reorganize in bankruptcy get funding to continue operations, funding that the automakers would have trouble getting with the current credit squeeze and weak auto sales.