Bailout Turns on Auto Makers' "Viability"

Democrats in Congress pushed ahead with proposals to bail out Detroit's faltering auto makers, but the Bush administration signaled its reluctance to go along without significant restructuring to cure the companies' competitive ills.

House Financial Services Chairman Barney Frank (D., Mass.) said Wednesday that he plans to hold a hearing next Wednesday, during a lame-duck session of Congress, with the chief executives of the Big Three auto makers and the head of the United Auto Workers union. It is unclear whether the executives will be grilled on the industry's problems, or asked to just formally present their requests for money.

RickWagoner, left, CEO of GM, and Alan Mulally, CEO of Ford, are expected to testify in the House next week on an auto-industry rescue plan.

The Bush administration and Republicans in the Senate could present an obstacle to an auto-industry bailout. Republicans already are uncomfortable with the government's costly intervention in the financial sector and the effective nationalization of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc.

Congressional Democrats and the Bush Administration have been at odds over the government's proper role as a stakeholder in the financial industry -- with Democrats demanding that the administration press banks taking public funds to lend more to consumers and renegotiate mortgage loans.

Taking a stake in a large auto maker, such as General Motors Corp., as part of an auto-industry rescue would bring the government's role in the economy to a new level. Among the conditions under discussion would be requirements that auto makers taking government capital commit to producing more fuel-efficient cars.

The debate over the wisdom of a government investment in Detroit's auto makers is focused on an argument over whether they can be "viable."

Treasury Secretary Henry Paulson on Wednesday called the auto makers critical to the U.S. economy. But he said any financial aid for GM, Ford Motor Co. and Chrysler LLC must be used for an aggressive restructuring of the money-losing, unionized manufacturers. "Any solution has got to be leading to long-term viability" for those companies, he said.

Mr. Paulson ruled out using money from the $700 billion Wall Street rescue fund to help the auto makers, saying the intent of that measure, known as the Troubled Asset Relief Program, or TARP, is to deal with financial institutions.

Mr. Paulson said the government already has set up a $25 billion low-cost loan program to subsidize auto manufacturers as they retool to build more efficient cars. But the legislation creating the program required companies taking those loans to be viable.

"One option would be to amend that bill to make money available," Mr. Paulson said.

The White House is reluctant to pour taxpayer money into auto companies that face the prospect of long-term insolvency. "We think the Congress was very wise in setting some limits on these loans," White House spokeswoman Dana Perino said Wednesday. "We would look to Congress and ask them if they are willing to amend that legislation or figure out some way to accelerate those funds."

So far, Bush administration officials aren't threatening to veto any bill. But they are showing a strong reluctance to move forward.

Reporters John Stoll and Matt Dolan discuss the future of General Motors and the likelihood of a government bailout. (Nov. 11)

In the Senate, Democrats don't have the votes to overcome a Republican filibuster. Democratic Senate leaders are considering pairing the auto measure with a stripped-down economic-stimulus package focused on extended jobless benefits and investments in things like roads and bridges. The bill would be substantially smaller than the $61 billion stimulus package that failed in the Senate in September.

A spokesman for Senate Minority Leader Mitch McConnell (R., Ky.) suggested Wednesday that action may be needed to "expedite" already-approved taxpayer loans to the auto industry. But a Senate Republican leadership aide said separately that Republicans are likely to approach giving more money to auto makers "with a large amount of skepticism."

For Republicans, the auto issue exposes emotions still raw from the just-concluded campaign, in which the financial-market rescue dominated debate in battleground Senate contests. The campaign arm of Senate Democrats aired ads that used the bailout against some incumbent Republicans, among them Sens. Norm Coleman of Minnesota and Saxby Chambliss of Georgia. Those races are still undecided, with Sen. Coleman's fate hanging on a recount and Sen. Chambliss in a runoff election.

A key factor in winning support for an auto bailout will be the conditions demanded of the manufacturers that take the money. Tennessee Rep. James Cooper, a fiscally conservative Democrat, said Congress must take a "tough love" approach and criticized "management and boards of companies that have shown arrogance since the 1950s that they never needed to change in a fundamental way."
[Bailout Turns on Auto Makers' 'Viability']

In a conference call earlier this week, Sen. Sherrod Brown (D., Ohio) said he is "hearing talk" in Congress about possible strings tied to any auto-maker assistance. These include freezing salaries of auto executives, ensuring taxpayer money isn't used to pay dividends to shareholders, and "very possibly" a requirement that new management be brought in.

Three big financial institutions that got federal bailouts -- including AIG and home-lenders Fannie Mae and Freddie Mac -- had to replace their top executives as part of the terms worked out with Mr. Paulson.

GM Chairman and Chief Executive Rick Wagoner has rejected the idea that he might have to step down as part of a federal rescue. He told Automotive News earlier this week that "it's not clear to me what purpose would be served" by stepping down.

Tony Cervone, a GM spokesman, said Wednesday that "it doesn't do anybody any good to speculate" on conditions the government might tie to financial help. "We have been careful not to be prescriptive with respect to terms of any loan program, but we do believe in the restructuring GM has undergone and don't believe it would be constructive to make a management change," Mr. Cervone said.

GM Wednesday reached out to its dealers, urging them to call members of Congress to support a new round of federal help. "GM's priority is on seeking support from various U.S. government agencies and congressional leaders," Mark LaNeve, GM's vice president for North American sales, service and marketing, told dealers in a letter.
—John Stoll and Alex Kellogg contributed to this article.