Nov. 12 (Bloomberg) -- House Speaker Nancy Pelosi's plan to aid troubled U.S. automakers threatens to spark a final clash with President George W. Bush before he leaves the White House in January.
Pelosi said yesterday she wants ``immediate action'' to give automakers additional assistance as shares of General Motors Corp. hit their lowest level since 1943 and analysts said the company faces possible bankruptcy. Bush hasn't said he would approve any further aid to those companies. Richard Shelby, the Senate Banking Committee's top Republican, opposes the measure.
Senate Democratic Leader Harry Reid made clear the bill's prospects of winning passage in this month's ``lame duck'' session rely on help from both congressional Republicans and Bush. Democratic gains in both chambers from the Nov. 4 elections won't go into effect until the new Congress convenes on Jan. 6. President-elect Barack Obama takes office two weeks later.
``There's no doubt in my mind that a bailout is on the way, I'm just doubtful it will happen during a lame duck,'' said Clint Currie, transportation analyst for Stanford Group Co. in Washington. ``Pelosi and Reid and the incoming administration wants to help them, while the current administration, not so much.''
Pelosi said any aid to the automakers would come with conditions, including restrictions on executive compensation, ``a prohibition on golden parachutes'' and ``rigorous independent oversight.'' She didn't specify the level of assistance she supports, but said it should come from the $700 billion Congress authorized the Treasury to use to help stabilize the financial services industry. Pelosi said she is tapping House Financial Services Committee Chairman Barney Frank to write the legislation that may be considered as early as next week.
Treasury's Stance
While the Treasury Department is considering ways to expand its use of the $700 billion relief package to non-bank financial companies, Secretary Henry Paulson has refused entreaties from the auto companies for capital injections. Such a move would significantly change the program from a financial rescue to one for industrial companies as well -- a step that the Bush administration still isn't willing to take, according to people familiar with its thinking.
One concern is that aiding the auto companies would lead to an expectation of assistance from other industries that are going through a slowdown, the people said. Unlike financial firms, which can take the taxpayer money and use it to spur growth by lending it out, industrial companies would use the capital for their own purposes.
Bush Awaits Details
The Bush administration is waiting to see the details of Pelosi's proposal before reacting to it, White House spokesman Tony Fratto said.
The Treasury-led bailout plan is currently being used ``consistent with the law and congressional intent,'' Fratto said. ``If Congress wants to change the law, we'll see how they intend to do it.''
Fratto said Congress had already passed a $25 billion loan package for the industry, which frees up money for GM, Ford Motor Co. and Chrysler LLC to retool factories to make more fuel- efficient vehicles.
The three companies are seeking an additional $50 billion in federal loans to help them weather the worst auto market in 25 years, according to a person familiar with the matter.
``It's strange that congressional Democrats would choose to ignore the $25 billion program they actually created to assist the automakers,'' Fratto said. ``That would be a better place to start.''
Low on Cash
Pelosi's plan comes as shares of GM, the biggest U.S. automaker, reached a more than six-decade low yesterday. The company said last week it may run out of operating cash as soon as year's end.
GM had $16.2 billion on hand as of Sept. 30, down from $21 billion at the end of June, and needs at least $11 billion to pay its monthly bills. Its shares slid 44 cents, or 13 percent, to $2.92 at 4:15 p.m. in New York yesterday. Ford fell 13 cents to $1.80.
The automakers embraced the possible action on government aid this year.
``We appreciate the speaker's call for urgent action,'' GM said in a statement. ``We are ready to work with Congress and the administration to secure the immediate support we need to bridge the current economic crisis.''
Ford said in a statement that it applauded the efforts of Pelosi and Reid to help the industry. Pelosi was among the lawmakers who met last week with the chief executives of GM, Ford and Chrysler.
`Not an Option'
GM reiterated this week that bankruptcy is ``not an option'' even as Deutsche Bank AG said the shares may be worthless in a year. ``A bankruptcy wouldn't address our immediate liquidity concerns,'' said Renee Rashid-Merem, a spokeswoman for Detroit- based GM.
Chief Executive Officer Rick Wagoner said GM's U.S. sales ``would be devastated'' by a bankruptcy filing. Deliveries fell 21 percent last quarter and 45 percent in October. The ``unimaginable consequence'' of a bankruptcy ``motivates us to really come up with cash in every way possible,'' Wagoner said in a Nov. 7 Bloomberg Television interview.
Some say GM's portrayal of its choices as government aid or liquidation may be a ploy to get a bailout, said lawyer Mark Bane, co-head of the bankruptcy department of Ropes & Gray, a law firm.
``GM is rolling the dice,'' he said. ``They're playing chicken with the government.''
Senate Obstacles
Some lawmakers may be only too happy to play. In addition to passing through the Pelosi-led House, any legislation must be approved by the Senate, where the minority Republicans can stall legislation through endless debate.
``The financial situation facing the Big Three is not a national problem, but their problem,'' Shelby said in a statement. ``I do not support the use of U.S. taxpayer dollars to reward the mismanagement of Detroit-based auto manufacturers in such a way that allows them to continue and compound their ongoing mistakes.''
Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell, said McConnell is reviewing Pelosi's plan and didn't have immediate comment. Democrats have a 51-49 majority in the outgoing Senate.
``We still have the slimmest of majorities in the Senate,'' Reid said in a statement. ``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 the economy.''
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