Bush to Steer Course Of Aid to Automakers

Some union officials have grown frustrated with the slow pace of the administration's decision-making.

"I think the U.S. government has handled this very poorly," said Ken Lewenza, president of the Canadian Auto Workers. "This uncertainty is scaring buyers away. I'm dumbfounded that this is carrying on almost into Christmas."

But financial experts caution that overhauling a major company, even in a prearranged bankruptcy procedure, is a time-consuming process, usually done over weeks or months.

GM shares ended the regular trading session down more than 16 percent. Ford fell nearly 10 percent. When a company files for bankruptcy protection, shareholders' value normally is wiped out.

For a managed bankruptcy, the Treasury would need to get approval of stakeholders, including the companies, bondholders, unions and perhaps dealers and suppliers, too. To win approval in a bankruptcy court, a reorganization must have the support of a majority of the bondholders with at least two-thirds of the outstanding debt not held by suppliers, or in GM's case at least $30 billion. Tracking down bondholders, spread among different funds and investors, can also be difficult.

The UAW must subject changes in wages to a vote of its membership unless the collective-bargaining agreements are altered during bankruptcy. The latter is allowed under certain conditions. "You can't automatically reject the contracts," Reuther said. "You have to go to the bankruptcy judge, and . . . it's a whole process."

A bankruptcy would also stigmatize the companies, discouraging car buyers, the National Automobile Dealers Association said.

"Bankruptcy, whether it's structured or not, would destroy demand for that company's vehicles and put dealers out of business," NADA chairman Annette Sykora said in a written statement.

President Bush, in a speech to the American Enterprise Institute in Washington, said yesterday that withholding government aid to the automakers is not an option and that he does not intend to leave behind a "major catastrophe" for President-elect Barack Obama in the auto industry. Bush said he has not yet decided on a course of action for automakers but was "worried about a disorderly bankruptcy and what it would do to the psychology of the markets."

"I think under normal circumstances, no question the bankruptcy court is the best way to work through credit and debt and restructuring," he said. "These aren't normal circumstances. That's the problem."

An unmanaged collapse of the automakers could trigger massive layoffs, a sell-off on the stock market, and further bankruptcies at suppliers of automotive parts and other firms connected with Detroit's Big Three. In a managed bankruptcy, by contrast, the government could bring together the unions, company executives and other stakeholders to work out an orderly restructuring.

Trouble is also brewing at GMAC, which provides auto loans to GM's customers and dealerships. The firm is applying to become a bank holding company so it can receive help from the federal government's financial rescue initiatives. But the Federal Reserve has required the firm to raise $30 billion for its application to be approved.

Today, the firm faces a key deadline in its efforts to raise those funds. In a filing, GMAC warned that it has been disappointed by how much money its campaign has attracted.

Staff writer Dan Eggen contributed to this report.