By Jason Simpkins
The Bush administration Friday dropped its opposition to using the $700 billion bank bailout fund to provide financing for U.S. automakers after the Senate balked at approving $14 billion emergency loans.
"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 spokeswoman Brookly McLaughlin said in a statement.
No specific announcement of a bailout was made, as there is still time before General Motors Corp. (GM) and Chrysler LLC – the companies in most at risk of foreclosure – run out of cash. However, the White House made it clear that the government is ready to backstop the companies by using a portion of the funds allocated to its Troubled Asset Relief Program (TARP).
"The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry," said White House press secretary Dana Perino.
The government has used roughly $335 billion into banks and insurance companies over the past two months, leaving about $15 billion of the initial $350 billion authorized by Congress for the TARP fund available for use. Treasury officials have been reluctant to make those funds available to the auto industry, however, as the money is still needed to backstop existing programs.
If the Treasury wants to tap the second half of the $700 billion bailout passed in October, the administration will first have secure Congressional approval.
A separate measure to grant the auto companies $14 billion in loans was approved by the House of Representatives last Wednesday, but failed to gain Senate approval.
"It's over with," said Senate Majority Leader Harry Reid, D-NV, after the Senate vote. "This is going to be a very, very bad Christmas for a lot of people."
Democrats blamed Senate Republicans for the bill's failure, and Senate Republicans, in turned blamed union labor.
"We're hoping that the Democrats will continue to negotiate but I think we have reached a point that labor has got to give, if they want a bill they can get done," said Senator Richard Shelby, R-AL.
Of course, the bill's demise left President George W. Bush at a crucial impasse and with virtually no option but to open the Treasury coffers.
"The consequences of the Senate Republicans' failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options," said House Speaker Nancy Pelosi. Action by President Bush is the "only viable option," she added.
Detroit's Big Three employ more than 200,000 people and support millions more U.S. workers indirectly through suppliers and dealerships. Their collapse could ultimately cost the economy more than 2 million jobs total. And that doesn't count the estimated 1 million Americans – including many retired autoworkers – who rely on the U.S. auto companies for pension and healthcare benefits.
Ford Motor Co. (F), which has more cash at its disposal than both GM and Chrysler, has said it would not seek government funds, but still urged Congress to help its competitors because their systems of supply and distribution are so intertwined.
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