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Auto bailout could be announced by Wednesday

The Bush administration could act as early as Wednesday to approve an automaker bailout from its bank rescue fund, key lawmakers and other sources said.

business Updated: Dec 16, 2008 10:25 IST
John Crawley

The Bush administration could act as early as Wednesday to approve an automaker bailout from its bank rescue fund, with conditions likely to reflect at least those approved by the US House of Representatives last week, key lawmakers and other sources said on Monday.

A Treasury Department official said the agency and auto company executives continued to review financial and other information, and that no decision had been made. The White House is actively involved in the matter, officials said.

Treasury Secretary Henry Paulson said, however, the government would have to be satisfied the industry could survive and compete in order to receive help.

"We would have to assure ourselves that this was a step on the path to long-term viability," Paulson told Fox News.

House Speaker Nancy Pelosi, a California Democrat, says the administration will likely use part of the $700 billion fund established in October to stabilize the financial services sector, rather than pushing the companies into bankruptcy, as some lawmakers have urged.

"That would be my expectation and I think all the signals coming from the White House are that they know that bankruptcy is not an option and that (stabilization) funds are the only recourse that they have," Pelosi said at a news conference.

General Motors Corp and Chrysler LLC, which is owned by Cerberus Capital Management, have said they need immediate injections of cash to avoid near-term collapse.

Ford Motor Co is seeking a government line of credit to be used if its financial conditions deteriorate more than expected in 2009.


GM shares closed 3.6 percent higher at $4.08, while Ford closed up 4.6 percent at $3.18 on the New York Stock Exchange on Monday.

Auto sales have plummeted amid a global economic slump, worsening an already bad financial situation in Detroit. The companies and other bailout proponents say a rescue is necessary to avoid massive job losses during a recession.

Democratic Sen. Carl Levin of Michigan, who helped spearhead a $14 billion rescue proposal that failed in the Senate last week, told reporters in Detroit that he expects help for both GM and Chrysler to come from the bank rescue fund and suggested GM could receive about $8 billion.

The company has said it needs $10 billion to carry it through March.

The U.S. Treasury has committed all but $15 billion from the initial pool of capital in the financial bailout account.

Levin and two other people familiar with the administration's thinking said they believe a decision will be made as early as Wednesday.

Levin said he expected conditions would be similar to those in the bill backed by Democrats and the White House and approved by the House on Wednesday, which was opposed by Senate Republicans.

There could be additional provisions relating to equity that would go to the government in return for assistance, Levin said.

"The president made a deal with the House of Representatives. It passed the House and once the president makes a deal, he's not likely to walk away from it," he said.

Bush told reporters aboard Air Force One on Monday that an announcement was not imminent and the financial bailout fund was a potential source for an auto company rescue.

The House-approved measure included numerous requirements such as the appointment of a trustee, or "car czar" to oversee disbursement of funds and compliance with loan terms. The companies would be required to file restructuring plans by March 31 to qualify for further help and demonstrate their commercial prospects.

The "car czar" could recommend bankruptcy if the plans were unsatisfactory.

Levin said the "car czar" for the remainder of the Bush administration, which ends on January 20, could be Paulson.

Tennessee Republican Sen. Bob Corker, who opposed the bailout but sought a last-ditch compromise in Congress, has encouraged the administration to include tougher conditions.

These could include faster and deeper concessions than planned by the United Auto Workers and an agreement for bondholders to convert a sizable percentage of debt to equity to boost liquidity.