Administration Cool To Automaker Bailout

Paulson Says $700B Plan Not Designed For Big Three, White House Noncommittal But Open To New Ideas

(CBS/AP)  Treasury Secretary Henry Paulson called autos a "critical industry" Wednesday but said a $700 billion financial rescue program wasn't designed for them. The White House was noncommittal, but said it was open to new ideas.

Asked about a Democratic congressional leadership plan to rush financial aid to the industry, Paulson cautioned that "any solution has got to be leading to long-term viability" for auto companies.

He said Congress could try to make funding more available to the auto industry as part of a $25 billion loan program approved in September to develop fuel-efficient vehicles.

At the White House, press secretary Dana Perino said the administration is not responsible for the automakers' woes but understands the importance of the industry. But officials there are reluctant to make any proposals for new aid, suggesting the car companies hold much of the responsibility for their own survival.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid are pushing for something more sweeping to help the industry, which is suffering under the weight of poor sales, tight credit and a sputtering economy.

Pelosi said Tuesday she was confident that lawmakers meeting next week in a lameduck session would consider "emergency and limited financial assistance" for the auto industry under the $700 billion bailout measure that passed Congress in October. She urged the outgoing Bush administration to support a compromise.

"In order to prevent the failure of one or more of the major American automobile manufacturers ... Congress and the Bush administration must take immediate action," said Pelosi, D-Calif.

Reid, D-Nev., said that Democrats were "determined to pass legislation that will save the jobs of millions" as part of a postelection session. "This will only get done if President Bush and Senate Republicans work with us in a bipartisan fashion, and I am confident they will do what is right for our economy," he said.

But, if recent history is any judge, an auto industry bailout may not have the desired effect. In the 1990s, Japan tried the same thing, reports CBS News business correspondent Anthony Mason.

"And what that resulted in that was this sort of quote unquote 'Zombie Economy,'" Steve Massocca, of Pacific Growth Equities, told CBS News. "You had these zombie companies that were kept alive simply by the fact that the government was able to support them."

The Bush administration has concluded that the bailout bill that passed earlier does not allow loans to the auto industry.

White House spokeswoman Dana Perino said the companies had made business decisions "over the years that have led to this situation, but we have gone as far as we can with the authority Congress has given in order to help industries." But she said the White House was open to helping the auto industry.

Lawmakers are expected to take up the issue when they return to the Capitol for a postelection session beginning next week.

Democratic leaders will need to convince some skeptical lawmakers who question whether a bailout would cause changes in the auto industry or simply lead to more handout requests from other industries.

"Once we cross the divide from financial institutions to individual corporations, truly, where would you draw the line?" asked Sen. Jeff Sessions, R-Ala.

In 1979, the government famously bailed out Chrysler with a $1.5 billion loan, which the company paid back just four years later. But this time, critics complain General Motors, Ford and Chrysler should not be rewarded for bad management, reports Mason.

"The Big Three make products that Americans don't want to buy," Dan Ikenson, of the Cato Institute, told CBS News. "So shouldn't you at least do that before you ask for a subsidy from the U.S. taxpayer?"

Michigan Gov. Jennifer Granholm said Wednesday that the crisis in the auto industry is urgent, arguing that "the national economy rests on this."

"This industry supports one in 10 jobs in the country," Granholm told CBS' The Early Show on Wednesday.

"If this industry is allowed to fail, there will be a ripple effect throughout the nation," she said. "This government decided that it was going to step in and throw $700 billion at the financial sector. We're just asking for a fraction of that."

Pelosi said any assistance to the industry should include limits on executive compensation, rigorous government review authority and other taxpayer protections.

Her request for legislation came less than a week after General Motors Corp. and Ford Motor Co. posted bleak third-quarter earnings reports. GM, the nation's largest automaker, posted a $2.5 billion quarterly loss Friday and warned that it may run out of money by the end of the year without government aid.

"We're in a situation where there's a great unknown about what will happen," said Sen. Debbie Stabenow, D-Mich. "And a great concern that at least one of the companies will find themselves in a situation where they cannot make it until January 20," when President-elect Obama is inaugurated.

GM spokesman Greg Martin said the automaker was "ready to work with Congress and the administration to secure the immediate support we need to bridge the current economic crisis."

Mr. Obama has urged the Bush administration to do more to help the industry and aides said he raised the issue with President Bush on Monday in an Oval Office meeting. Officials familiar with the conversation said the president replied he was open to the idea.

Congress approved legislation in late September to provide $25 billion in loans to domestic automakers and suppliers to upgrade factories to build more fuel-efficient vehicles. But the funding has stalled and supporters of the industry say it will not be sufficient to help the companies with their immediate financial problems.

Executives with GM, Ford and Chrysler LLC and the president of the United Auto Workers union pressed Pelosi and Reid to provide an immediate $25 billion loan to keep the companies operating and a separate $25 billion to help cover future health care obligations for retirees and their dependents.

"We are down to days; maybe a couple of weeks," Rebecca Lindland, an auto analyst at Global Insight, Inc., told CBS News.

If even one of Detroit's Big Three fails, according to a new study, 2.5 million jobs could be lost as the impact spreads from workers to dealers to suppliers, reports Mason.

"This is not a vacuum," said Lindland. "This is not just one company. This is a domino effect. Where one company goes down, you're going to see the industry go down as well."

Pelosi's statement did not specify the size of the aid package. She has tasked Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, to draft legislation, and a companion effort is under way in the Senate.

Sen. Carl Levin, D-Mich., said lawmakers from his state are crafting legislation that would allow the auto industry to receive $25 billion in loans under the $700 billion bailout program.

[beachshoe]

Hey, Gettlefinger, take a long walk off of a short pier. You say your membership "will make no more concessions", huh? If the Big 3 go under, by God your membership WILL make concessions. You and UAW''s merry little band of thieves are directly behind this and have been for at the very least, 40 years.
You don''t see Honda, Toyota, US etc. without UAW crying, do you??
You pitiful underworked, overpaid ***! Read the first line again!

[dmanindemand]

We as Americans can''t let any of the big three totally collapse. I also agree we just can''t give them a lump sum of money, and allow them to spend and plan as they go on. Give the incentive to the American people. If you buy American cars during a period of time, the Gov''t will give rebates, low interest rates or something. And dismantle the UAW, they are the number one issue hurting the big three''s competitive edge.

[marcirvin]

This is not about GM. This is about your friends, your family, and your economy. Risking the loss of three million jobs is risky, no matter how you cut, and the main ingredient in the recipe for "Depression". That said, I agree that GM should not get a one red cent for its bad management.
However, ask yourself, is throwing friends and family under the bus the only way to dole out justice? I thought long and hard there and remembered Forest Gump''s line "stupid is as stupid does". GM execs were stupid, let''s be smarter than them. Is there a compromise that skips the bailout, punishes the execs, protects the workers, and boosts the economy all at the same time?

Lets focus on what GM and American car makers have done right lately--built their non-SUV cars equal to their foreign competitors. Consider this: GM can''t sell enough cars, and Americans are stuck on foreign cars. If GM could sell its cars it wouldn%u2019t need a bail out. So what if our leaders launched a buy non-SUV American cars campaign, and fueled the buying with large tax rebates? Remember, consumers change buying habits slowly, and tax incentives change the dynamic. This rebate for high MPG cars rewards all US car makers who build great cars, not GM. It rewards consumers who buy great cars. It gives our leaders smarter way to 1) pass on the GM bail out, 2) publicly humiliate GM''s execs, 3) save GM''s workforce, 4) reduce gas consumption, 5) focus consumer spending where it counts most.

[taylorsucram]

Alright people, don''t forget how General Motors got into this mess. Keep saying over and over again, GMAC (the financial arm of General Motors) bought into the sub-prime mortgage market when they should have been financing automobiles. GREED and an attempt to ride the housing bubble is what pushed GM into certain bankruptcy. Oh, and they also sell cars nobody wants to buy! In addition, Park Avenue-based Cerberus'' 51 percent stake in GMAC - the owner of a massive subprime mortgage portfolio - is looking increasingly problematic. And when you factor in the sale of Chrysler to Cerberus Capital Management back in May, well you''re actually bailling out Cerberus'' Board of Directors and Top Management not Genral Motors nor Chrysler. You don''t see FORD whining.

Solution: FIRE THE BOARD OF DIRECTORS, NO BONUSES, ONE DOLLAR A YEAR SALARIES FOR TOP MANAGEMENT, NO DIVIDENDS AND EVERY PENNEY OF TAXPAYER MONEY PAID BACK!

[albo58]

Totally ban the unions and we can discuss a loan!

[svine]

Only when, and I mean only, the big 3 document their cost reduction plan, their strategy plan for the next five years, and their committment to alternative energy sources should the government consider giving them money. The big 3 are the epitomy of waste and bad management. Why should we write them a blank check? And if we do, who''s next? The mines, the airlines, etc???

[iowa0319]

It should be no surprise to anyone that the auto industry now has its hand out.

[hitoyou1]

It will be the first thing he does "RIGHT" if he does not give the big three one dime. Let them go down. Then make junk, that is all the big three and UAW know how to do.

[graciedog3]

It is now clear. The average I.Q. of American voters is around 10.
Who the devil else is going to make heavy military equipment when we need it? It is insane that we let the only manufactruring base in the u.S. which can handle this eventuality (not possibility) simply evaporate. This is a nation of dimwits.

[talkingham]

If they bail out these incompetent arses then firing every executive making over $100,000 yr should be part of the process. They kept building larger and larger vehicles with absolutely no sense of economy ergonomics or any other functionally smart concept. They seemed more concerned with paying advertising agencies millions to come up with stupid large sounding names and engineers to build "powerful sounding" inefficient engines.

You can take the Tahoes, the Denalis, the Yukons, the Ford Expirations (covers all of their SUV models, and dump ''em in lake Michigan where they belong.

[hologram5]

If these companies have factories or plants overseas then they should not get a DIME of our money...

[payasyougo]

For many years the automakers over-committed long term benefits to union members in exchange for immediate term profits. As long as people were buying the product, the over-committed benefits were never questioned. In other words, as long as the here/now/today society was prospering why worry about tomorrow.

Well their long term lack of planning is now biting them.

And your government is acting just like them.

Bailing out the automakers to handle the problem today while ignoring the long term issues to today''s government commitments is just as reckless as the automakers.

Will 50B solve the automaker''s problems or just get them through the next 3 months where they will come back again?

And what about the taxpayer? Why must every problem be solved by the government (read Taxpayer)?

Retailers should be included. What makes a laid off $17 per hour retail worker w/ a family any less important than someone who turns lug nuts for $41 per hour?

Having the taxpayer provide 3 months relief to a problem that is going to last 18 months is no solution - it just spreads the problem across taxpayers - who will have to deal with it later.

Automakers should deal with it themselves now.

[j_flood]

Chapter 11 - forget the bailout!
Chapter 11 - forget the bailout!
Chapter 11 - forget the bailout!
Chapter 11 - forget the bailout!
Look at all the other surviving corporate icons that have taken Chapter 11 to reorganize - no bailout here please

[daniel_yang]

i''d like to learn english from a native american, please send your YM or Skype account to my mailbox if you have interesting:
[e-mail]. :)

[daniel_yang]

i''d like to learn english from a native american, please send your YM or Skype account to my mailbox if you have interesting:
[e-mail]. :)

[bnnielsen]

IF IT ISN''T MADE IN THE UNITED STATES WHY SHOULD WE BAIL OUT ANYTHING. THEY WANTED TO MOVE THEIR BUSINESS OVER FOR CHEAPER LABOR SO LET THEM BAIL THEIRSELVES OUT.

[apprxam]

Let''s not fool ourselves. The UAW will lose more members on matter how much money is given to the Big 3. Like the banks, they''re going to pocket the loans for themselves first. I think The US government and Michigan should receive voting shares and dividends for them, force them to sell the foreign companies under their charge. Force GMAC and other financial arms of the companies to reset the interest rate of all loans to help insure, as best as possible, the repayment of outstanding loans and to hekp improve their bond ratings, so they can borrow earlier in the future and preferable rates rom private banks.

[apprxam]

Before any money is given to the Big Three, change must start with the Board of Directors. Fire their arses and get rid of the Executives, en mass, and allow them no greater share withdrawl then any annouced BAILOUT bump in share price. Let em leave broke, just like their leaving the industry. Let new blood move them forward.

Gas is cheap now. $1.99 no need to ride in a sardine can.

Posted by mr22587 at 10:07 PM : Nov 12, 2008
*****************
If gas prices stay relatively low for awhile - it''ll make for a great time to unload that gas guzzling SUV and buy something sensible. The gas crunches will continue periodically - probably getting progressively worse.

[perk235]

GMAC is the financing arm of GM. It, like other financial industries made risky bets (credit default swaps) and is a large part of GMs failure.

Due to stagnant wages, the auto industry was one of the first to jump into creative financing and ended up relying on financing for much of their profits.