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White House to bail out automakers?

WASHINGTON: Unable to persuade Republican Senators to support a compromise proposal for rescuing the Big Three car companies, U.S President George W. Bush signalled on Friday a new willingness to allow the U.S. Treasury to funnel money to Detroit from the $700-billion bailout plan for financial institutions.

“Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms,” said Dana Perino, Mr. Bush’s spokeswoman, in a nuanced statement released just minutes before the New York financial markets opened. “However, given the current weakened state of the U.S. economy, we will consider other options if necessary, including use of the TARP programme, to prevent a collapse of troubled automakers,” she said.

TARP is the Troubled Assets Relief Programme, the official name of the Treasury’s financial rescue plan. “A precipitous collapse of this industry would have a severe impact on our economy,” the statement continued.

“It would be irresponsible to further weaken and destabilize our economy at this time.”

The statement indicated Mr. Bush is prepared to capitulate on his biggest objection to Democratic proposals for staving off bankruptcy at General Motors, Chrysler and possibly Ford Motor Co. in the future. Mr. Bush had insisted the Treasury programme be reserved for financial institutions, arguing that TARP had no legislative requirement that companies receiving assistance demonstrate their long-term “viability.”

In its statement, the White House appeared resigned to using the Treasury after all, though it warned that the car companies and unions had to make “meaningful concessions” to make the companies viable. At the moment, the Treasury has committed about $340 billion of the first $350 billion that Congress has authorised. That means the Treasury may have to ask Congress for the second half of the money, which would likely set off another pitched battle.

Under the legislation governing TARP, the Treasury would automatically get the money unless both Houses of Congress vote to disapprove the request.

After Senate Republicans baulked at supporting a $14-billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal, but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.

The failure in Congress to provide a financial lifeline for GM and Chrysler was a bruising defeat for Mr. Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy. “It’s over with,” said Senate majority leader Harry Reid on the Senate floor, after it was clear that a deal could not be reached. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight,” he said.

Senator Mitch McConnell of Kentucky, said: “We have had before us this whole question of the viability of the American automobile manufacturers. None of us want to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves.”

Markets reacted quickly in Asia. In Japan, the Nikkei 225 index closed down 5.6 per cent after the proposal failed and other markets registered substantial retreats as well. — New York Times News Service

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