Treasury Secretary Henry Paulson told Congress on Tuesday that the administration remains firmly opposed to dipping into the government's $700 billion financial bailout fund for a $25 billion rescue package for Detroit's Big Three automakers, no matter how badly they need the help.
"There are other ways" to help battered automakers, Paulson told the House Financial Services Committee as the auto bailout legislation clung to life support on Capitol Hill.
Committee members grilled Paulson on the administration's stance that the $25 billion come from separate legislation passed by Congress, which was designed specifically to help auto manufacturers retool their factories so they can make more fuel-efficient vehicles.
The $700 billion plan enacted by Congress in October and signed into law by President Bush did not envision that the program would be used to help rescue nonfinancial companies, Paulson said.
"I believe the auto companies fall outside of that purpose," he said.
At the same time, Paulson testified, "I think it would be not a good thing, it would be something to be avoided, having one of the auto companies fail, particularly during this period of time."
Paulson said that solving the financial problems of the automakers should be done in a way "that leads to long-term sustainable viability" for the industry.
Auto executives, backed by leading Democrats, insist they need another $25 billion in emergency loans -- on top of the $25 billion already approved -- to avert a collapse of one or more of their companies before year's end. That would bring the total federal help for the industry to $50 billion this year.
General Motors, Chrysler and Tesla Motors Inc. have applied for loans and Ford CEO Alan Mulally said the automaker plans to apply on Tuesday. GM, Chrysler and Ford have not disclosed the amount of funding they're seeking from the Energy Department or for what purposes. Tesla said it was seeking about $400 million in loans for two projects.
But auto executives, backed by leading Democrats, insist they need another $25 billion in emergency loans to avert a collapse of one or more of their companies before year's end. That would bring the total federal help for the industry to $50 billion this year.
The executives, along with the head of the United Auto Workers union, were making their case Tuesday at a hearing before the Senate Banking Committee as auto bailout backers hunted the votes necessary to pass the plan in a postelection session. Aides in both parties and lobbyists tracking the plan privately acknowledge they are far short.
The debate comes as the financial situation for General Motors Corp., Ford Motor Co. and Chrysler LLC grows more precarious. GM has said it could run out of cash by year's end without government aid.
"They're going to need to address what is the perception among some of our colleagues here that there's still some quality issues with the Big Three, and they haven't begun to do the necessary restructuring -- because they have," said Sen. Carl M. Levin, D-Mich., an architect of the bailout.
Mulally argued Tuesday in advance of the hearing that his company already been laboring to "transform our business" into a more profitable one that meets 21st century demands for fuel-efficient vehicles.
Interviewed on ABC's "Good Morning America," Mulally denied that automakers resisted restructuring their companies to meet current marketing realities.
He also took exception to assertions the company has been badly managed, saying that "if everybody can remember, we had gotten back to profitability in the first quarter of this year ... None of us ever anticipated that we'd be in a world where our sales in this industry have fallen by 40 percent in the first nine months."
Levin's bill would provide loans with initial interest rates of 5 percent to the U.S. automakers and suppliers in exchange for a federal stake in the companies or warrants that would let the government profit from future gains. Loan applicants would have to give the government a plan for "long-term financial viability."
But the measure stops short of giving the government a say over the firms' operations through an oversight board or hard limits on executive compensation. While taking advantage of the program, the companies could not pay dividends, award bonuses to executives making more than $250,000 a year, or give golden parachute payments to top people departing from the firms.
A vote on the measure -- which includes an extension of jobless benefits -- could come as early as Thursday. But in an acknowledgment of the long odds facing such a plan, Majority Leader Harry Reid, D-Nev., also laid the groundwork for a straight up-or-down vote on the more widely supported unemployment measure, which is probably all that can pass this week.
The Senate auto bailout bill notes that 355,000 U.S. workers are directly employed by the auto industry, and an additional 4.5 million work in related industries. That doesn't count the 1 million retirees, spouses and dependents who rely on the firms for retirement and health care benefits.
Critics argue that the industry's business practices -- including lavish pay and benefits packages for auto workers -- have created unsustainable costs for the faltering companies that can only be solved with bankruptcy.
"I can't see how injecting capital with all the legacy issues that each of these companies has is better than reorganization," said Sen. Bob Corker, R-Tenn.