The White House weighed its options Saturday for preventing a collapse of the troubled auto industry, once the backbone of the U.S. economy. So far, the only thing certain is that the Bush administration wants to avoid the possibility of a disorderly bankruptcy of any of the Big Three.
General Motors Corp. and Chrysler LLC have said they could run out of cash within weeks without government help.
"Administration officials are continuing to gather financial information from the automakers, assessing the data, their cash position going forward," White House deputy press secretary Tony Fratto said Saturday. "We'll take a look at that information, make some judgments and review our options."
Any avenue of government rescue must surmount political obstacles and take into account the potential fallout on financial markets in a time of recession. The administration is keeping President-elect Barack Obama and his advisers abreast of its discussions.
"We'll be focused on trying to get the policy right while considering the best interests of the taxpayer and our economy, and we'll take the time we have available to do that right," Fratto said. "No decisions have been made."
The White House and congressional Democrats had agreed on a $14 billion measure that would have extended short-term financing to the industry and set up a "car czar" to make sure the money was used to turn the Big Three into competitive companies. The legislation, however, died when Senate Republicans demanded upfront pay and benefit concessions from the United Auto Workers that union officials rejected.
The failure on Capitol Hill prompted urgent requests for White House intervention. Administration officials were dispatched to weigh the pros and cons of a range of other bailout actions. White House and Treasury Department officials are keeping details of their discussions closely held for fear of affecting markets, but financial experts have zeroed in on a few likely avenues for helping the auto industry and its 3 million workers.
One way is to tap directly into the $700 billion financial rescue bailout fund to provide loans to the carmakers. Another is to use part of the bailout fund as a kind of collateral for emergency loans the automakers could get from the Federal Reserve. The administration also could do nothing, leaving open the possibility that one or more of the automakers could go bankrupt. It also could wait for the new Congress, flush with more Democratic votes when it returns in early January, to try again to get bailout legislation passed.
"In terms of what happens next, it seems like the real question is `How long can GM really hold out?"' said James Gattuso, a research fellow in regulatory policy at the Heritage Foundation. "I've heard a couple of weeks and I've heard through February. I think only the people on the inside of GM know that."
For weeks, the White House has insisted that the $700 billion financial industry rescue plan enacted in October should be used solely to help financial institutions. On Friday, however, the White House signaled that it would consider using the so-called TARP -- Troubled Assets Recovery Program -- to prevent auto manufacturers from collapsing.
Critics quickly pointed out the administration's U-turn. They insisted the White House reject calls to do an end-run around Congress and unilaterally use TARP money to help the carmakers. "You're dealing with a significant amount of money and sums of this sort just simply can't be repurposed just because it's there," Gattuso said.
A second possibility offers Bush some political cover. Treasury Secretary Henry Paulson could use part, but not all, of the $15 billion left of the first $350 billion allocated to the TARP to back up loans the automakers could get from the Fed's emergency lending program. That would leave some money to help troubled financial institutions, which Bush has long argued should be the first in line for TARP money.
Federal Reserve Chairman Ben Bernanke has said he's reluctant to use the Fed's emergency lending program for the automakers. Decisions about giving financial aid to Detroit are best left to Congress, he says.
Bernanke also has questioned whether the automakers have sufficient collateral to secure emergency loans from the Fed. And critics worry that other companies might take risks knowing the central bank could help bail them out too.
However, financial analysts who think this avenue for helping the automakers is viable note that in March, faced with the collapse of Bear Stearns, other investment houses were allowed to draw emergency cash loans from the Fed. That marked the broadest expansion of the Fed's lending powers since the 1930s.
If, for example, the Federal Reserve agrees to lend the automakers $15 billion, the Treasury could deposit maybe $5 billion with the Fed to be used first if any of the automakers defaulted, said Vincent Reinhart, director of the Federal Reserve Board's division of monetary affairs from 2001 to 2007. "From the Fed's standpoint, it makes them feel more comfortable, and politically, Bush hasn't used all the resources in the TARP," he said.
Asked whether GM thinks using the TARP money for direct loans or as collateral on loans from the Fed would provide the automaker with enough help in the short-term to avoid a collapse, GM Spokesman Greg Martin on Saturday replied "Yes."
The company's financial staff worked over the weekend exploring options with Treasury officials.
GM announced Friday it would cut an additional 250,000 vehicles from its first-quarter production schedule -- a third of its normal output -- by temporarily closing 20 factories across North America. The move affects most plants in the U.S., Canada and Mexico.
"If the administration can convince itself that a bankruptcy could be an orderly proceeding, then they could let it happen."
The Bush administration, which has just weeks left in office, wants to try to avoid a "disorderly" bankruptcy.
"It's possible that the administration won't do anything," Reinhart said, listing long-running problems with the industry. "If the administration can convince itself that a bankruptcy could be an orderly proceeding, then they could let it happen."