Coming to Detroit's Rescue?

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By Kendra Marr and David Cho
Washington Post Staff Writers
Tuesday, October 28, 2008

The Bush administration is in negotiations to broaden its $700 billion financial rescue plan to include U.S. auto companies, potentially opening the door to an array of industries to seek federal aid.

Detroit's Big Three are eligible for aid under a broad interpretation of the law that authorized the $700 billion financial rescue, Treasury Department officials said yesterday. But they declined to discuss the details of any assistance.

"The law grants the secretary broad authority to purchase troubled assets that he deems important to improving financial stability," said Treasury spokeswoman Jennifer Zuccarelli.

Ford and General Motors are eligible because they are both chartered as thrift holding companies, so they can establish banks to make car loans nationwide. Other businesses, such as General Electric, Nordstrom, John Deere and Macy's, are chartered in the same way to issue credit cards or make loans to their customers. Chrysler would also be eligible, Treasury officials said.

Helping such businesses could put the Treasury in the tricky situation of picking winners and losers within the economy, a far cry from restoring the free flow of credit in the financial system, which was the original intention of the rescue package, some analysts said. It could lead to a long line of companies heading to the Treasury for aid, especially if the holiday shopping season is as disastrous as retailers are forecasting.

Automakers are among the most troubled of the bunch. Their financing arms make more money than the cars themselves. Yet the credit crisis has all but frozen this part of the business, making it difficult for shoppers to get the loans to buy cars and even for dealers to finance their inventory.

Auto sales for GM, Ford and Chrysler are all down by double-digit percentages. Last week, the companies cut a variety of employee benefits and thousands of jobs to preserve cash. In a sign of further problems ahead, credit-rating agencies are considering downgrading GM's financing arm, which would make it more expensive to raise money.

In a year, Detroit's Big Three might shrink to the Big Two as manufacturers burn through cash, according to some analysts. Chrysler is in talks to merge with GM or partner with a combination of Nissan and Renault.

Detroit has turned to the government for help. Though Congress rushed to pass a $25 billion loan package aimed at boosting production of energy-efficient vehicles, the money could come too late and could not be used freely by automakers.

An industry source, who spoke on condition of anonymity because this person was not authorized to speak for the companies, said the Energy Department was accelerating the first $5 billion installment to assist a merger of GM and Chrysler. But Healy E. Baumgardner, an Energy Department spokeswoman, said it was accelerating the process to get the money to Detroit but dismissed speculation that a check could be cut imminently.

"To talk about a timetable or any monetary amount is premature," she said.

Last week, the Michigan congressional delegation, headed by Rep. John D. Dingell (D), implored Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke to use their "broad regulatory authority" to "promote liquidity in the U.S. auto industry."


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© 2008 The Washington Post Company

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