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White House Moves Toward Auto Bailout
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The automakers' suppliers said they were already suffering from the industry slowdown.
"Our warehouse used to be full of huge coils of steel waiting to be processed," said Wes Smith, president of E&E Manufacturing, an auto supplier in Michigan. "Now it's empty. We have no orders. No one is buying vehicles right now."
Smith's initial budget forecast $100 million in sales for the year. Now, he said, he'll be lucky to break $70 million. His workforce has dropped from 550 employees to 305.
The big auto companies, analysts said, are due to pay most suppliers Jan. 2 -- before Congress returns. Some suppliers said unpaid bills were already piling up.
Meanwhile, GMAC, which provides financing for most GM dealers and many GM customers, remains locked in negotiations with its investors over a restructuring plan.
GMAC set a deadline of 5 p.m. yesterday to persuade investors to participate in its plan to become a bank holding company, allowing it to access money from sources including the Treasury Department. Analysts said the company could be forced to file for bankruptcy protection if it does not succeed.
Last night, GMAC said in a statement it had made "substantial progress" in getting investors to cooperate but cautioned that it needed "significant additional participation" for the plan to work. The company extended its deadline to Tuesday.
President-elect Barack Obama said that the condition of the economy makes aid to the auto companies necessary.
"I share the frustration of so many about the decades of mismanagement in this industry that has helped deliver the current crisis. Those bad practices cannot be rewarded or continued," Obama said in a statement. "But I also know that millions of American jobs rely directly or indirectly on a viable auto industry, and that the beginnings of reform are at hand."
Many lawmakers and analysts fear that tapping the TARP to rescue the auto companies could open the way for other aid requests from ailing companies outside the financial sector.
"Whatever one thinks of TARP, this clearly establishes a precedent for an industrial company to get money," said Brian Johnson, an automobile analyst at Barclays Capital. Still, he added, "not many chief executives will want to go through what the auto company CEOs went through," testifying before angry members of Congress.
Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) yesterday raised the prospect of Federal Reserve lending to help tide the automakers over. A Fed rescue would also help avoid a clash between the Bush administration and Congress over the release of the next installment of TARP, which Dodd opposes.
