President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved U.S. automakers — money that likely would be spent at the discretion of a “czar” to guide the companies.
At stake, Obama’s economic team believes, are hundreds of thousands of automotive jobs and a large chunk of the functioning U.S. economy. The president-elect is convinced that General Motors Corp. could fail by the end of January without the money, according to Bloomberg new service.
A GM bankruptcy could send the U.S. jobless rate as high as 9.5 percent, up from a 14-year high of 6.5 percent in October, and produce a recession comparable in length to that of 1980-82.
Such a move would require the support of President George W. Bush if that prediction is accurate. Any czar or government board would be patterned after the bailout of Chrysler in 1979 and New York City in 1975. Obama is being pressed by a team of advisers that includes former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Lawrence Summers.
To get the plan to President Bush, Congress would have to act in a lame-duck session that begins next week. Obama would need Bush's backing to pass such a sweeping and costly measure in part because Democrats don't have enough votes to force a floor vote or override a veto, Bloomberg reported. Obama also would need strong support from governors and legislators in auto-producing states such as Michigan, Ohio, Indiana, Illinois, and Wisconsin to pass such a sweeping and costly measure.
Yet to be determined is whether any of the money would be drawn from the $700 billion financial rescue package Congress passed last month or from newly allocated funds.
Pushing such a plan would represent a reversal from Obama's stated stance not to interfere with any policymaking until he takes office. But experts told Reuters that the failure of any of the Big 3 — General Motors, Ford Motor Co. and Chrysler LLC — would devastate the auto industry, taking down parts-makers, dealerships, and suppliers. It also would inflict a deep psychological blow on the American economy.
Another potential obstacle to the plan would be unions — a key constituency of Obama’s Democratic Party. If the plan were to offer no strong guarantees against layoffs it would likely draw fire from unions. But letting the automakers fail also would have an impact on hundreds of thousands of retirees — men and women now in their 70s and 80s who depend on the companies generous health plans.
"The auto industry is too big to fail,'' said Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts. "While the Obama administration can wait until January 20 to address other matters, on this one they need to move quickly.''
Shares of GM, the largest U.S. automaker, reached a six-decade low this week. The company said last week it may run out of operating cash by the end of this year.
"We've not being prescriptive in what would be acceptable in terms of the loans,'' GM spokesman Tony Cervone told Bloomberg.
Ford and Chrysler probably would be forced into bankruptcy eventually if GM failed, said Mark Oline, a Fitch Inc. credit analyst.
The tipping point for the plan occurred during a meeting Nov. 7 with Michigan Gov. Jennifer Granholm, who pushed the case for more aid.
Obama, an Illinois senator, pressed Bush on the urgency of an assistance package during their Nov. 10 meeting at the White House, Obama spokesman Robert Gibbs told reporters this week.
Still, the Bush administration so far has opposed bailing out the carmakers and continues to resist the idea of using the Troubled Asset Relief Program, the bank rescue that Congress passed in early October, for any companies other than banks.
"The intent of the TARP was to deal with the financial industry,'' Treasury Secretary Henry Paulson, who is administering the program, said during a news conference Wednesday.
"My focus is on the financial sector, getting credit going, getting lending going.''
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