Showdown Begins Over Lifeline to Automakers

Democrats are pushing a plan to dip into the Treasury's financial rescue program to loan $25 billion to cover day-to-day operations at car companies.
Democrats are pushing a plan to dip into the Treasury's financial rescue program to loan $25 billion to cover day-to-day operations at car companies. (By Dominic Bracco Ii -- The Washington Post)
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By Lori Montgomery
Washington Post Staff Writer
Thursday, November 13, 2008

The Bush administration signaled yesterday that it would reject a proposal by congressional Democrats to immediately advance $25 billion in government loans to ailing Detroit automakers.

The White House and Treasury Secretary Henry M. Paulson Jr. made clear that while they are open to helping the auto industry, they are strongly opposed to Democrats' plans to carve cash out of the government's $700 billion financial rescue program. Despite those warnings, Rep. Barney Frank (D-Mass.) said he would move ahead and draft legislation, setting up a final showdown with the Bush administration.

Meanwhile, with no sign of a compromise between the White House and the Democrats who control Congress, hopes were dimming for a large spending package intended to revive the nation's broader economy. While House Speaker Nancy Pelosi (D-Calif.) once spoke of dedicating as much as $150 billion to road projects, food stamps and aid to state governments, some Democrats now are talking of settling for a $6 billion proposal to extend unemployment benefits.

That prospect has alarmed some major business organizations, which are stepping up pressure on lawmakers and the Bush administration to support not only a bailout for the auto industry but also a far-reaching stimulus package aimed at easing what economists say could be the worst recession since World War II.

"People are scared," said R. Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce, who called on the White House to engage in talks with Democrats to break the impasse. "You're at a point where everyone knows GDP is going to contract, joblessness is going to increase and credit is still very much frozen. It would seem to me it is supremely in the nation's interest to alter those dynamics."

Josten said the Chamber, Business Roundtable, National Association of Manufacturers and other business groups are girding for a massive lobbying campaign, much like the unprecedented effort launched last month to help push the $700 billion financial rescue package through a reluctant House. The groups have signed onto Democratic proposals for fresh spending on social programs and have submitted their own wish lists of business-oriented provisions, including a tax holiday for companies to bring foreign earnings back to the United States and relief from a federal law that requires companies to quickly fund pension plans.

Since signing a stimulus measure in February that gave billions of dollars in rebates to taxpayers, the White House has resisted calls for a second round of federal spending even as the unemployment rate has risen to 6.5 percent, its highest level in 14 years. Democrats want to devote a large portion of any new stimulus package to roads, bridges and other public works projects, which they say would create jobs. But the White House says such spending would not flow fast enough to provide a quick boost to the economy.

The White House also is strongly opposed to bailing out automakers with money taken from a Treasury program that was created to shore up the U.S. financial system.

"We do not welcome efforts to weaken the Treasury program," said White House spokesman Tony Fratto. "The Treasury program is working to deal with the financial crisis, and that is what it ought to continue doing."

At a media briefing yesterday, Paulson said the program is successfully thawing frozen credit markets and that the rest of the money should be reserved solely "to deal with the financial industry."

Paulson said the auto industry is "critical to the country," but that any federal aid must promote the "long-term viability" of the car companies, which are hemorrhaging cash in the face of the sharpest drop in auto sales in two decades. He said Congress could consider speeding delivery of $25 billion in low-interest loans that it approved for automakers in September.

That package, however, was designed to help automakers retool their factories to produce more fuel-efficient vehicles. Democrats dismissed Paulson's suggestion.

Congressional Democrats are pressing ahead with plans to dip into the Treasury program to provide $25 billion in bridge loans to cover day-to-day operations at the car companies, particularly General Motors, which says it could run out of money within months. Pelosi has tapped Frank, the chairman of the House Financial Services Committee and a key architect of the Treasury rescue program, to craft the auto legislation. Frank said he would summon the chief executives of GM, Ford and Daimler-Chrysler, as well as the head of the United Auto Workers, to testify at a hearing next week before his committee.

In exchange for federal aid, the car companies would be subject to the same penalties as other firms that participate in the Treasury program, Democrats said, including limits on executive compensation and severance packages known as golden parachutes. The car companies also would have to provide stock to the government so taxpayers could benefit when the firms returned to financial health, aides said, and they could be barred from using public funds to pay dividends.

Key Democrats said they also want to impose conditions to ensure that the emergency loans support the car companies' shift from gas-guzzling models toward hybrids in an effort to help reduce the nation's dependence on foreign oil.

Democrats are discussing attaching additional strings to the money. For example, Sen. Charles E. Schumer (D-N.Y.) said he wants "some assurance that they're not going to come back and ask for more money six months from now."

The UAW plans to seek an additional $25 billion in public funds to cover the first payments to a union-run trust that will take over retiree pensions and health benefits from the car companies. Alan Reuther, the union's legislative director, said this aid could help free up additional lending to the automakers. "Private lenders are reluctant step forward because they see this big liability out there," he said.

Meanwhile, Sen. Barbara A. Mikulski (D-Md.) yesterday unveiled a plan intended to boost auto sales by making sales and excise taxes, as well as interest on auto loans, tax deductible through the end of 2009.

Republican lawmakers said they were skeptical about expanding the Treasury program to an industry beyond the financial sector. "I don't know where you stop once you get started down that path," said House Minority Whip Roy Blunt (R-Mo.).

But Frank said Democrats are betting that Republicans will not want to be responsible for the collapse of the auto industry.

If Congress passes a bill, Frank said of the White House, "we don't think they'll kick it back."

Staff writers Kendra Marr, Michael Shear, Paul Kane and Thomas Heath contributed to this report.

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