White House Assessing Options to Aid Carmakers

Bernanke also has questioned whether the automakers have sufficient collateral to secure emergency loans from the Fed. And critics worry that other companies might take risks knowing the central bank could help bail them out too.

Workers drive out of the Jeep plant in Toledo, Ohio, after work Friday, Dec. 12, 2008. Festering...

Workers drive out of the Jeep plant in Toledo, Ohio, after work Friday, Dec. 12, 2008. Festering animosity between the United Auto Workers and southern Senators who torpedoed the auto industry bailout bill erupted into full-fledged name calling Friday as union officials accused the lawmakers of trying to break the union on behalf of foreign automakers. (AP Photo/Madalyn Ruggiero)

(AP)

However, financial analysts who think this avenue for helping the automakers is viable note that in March, faced with the collapse of Bear Stearns, other investment houses were allowed to draw emergency cash loans from the Fed. That marked the broadest expansion of the Fed's lending powers since the 1930s.

If, for example, the Federal Reserve agrees to lend the automakers $15 billion, the Treasury could deposit maybe $5 billion with the Fed to be used first if any of the automakers defaulted, said Vincent Reinhart, director of the Federal Reserve Board's division of monetary affairs from 2001 to 2007. "From the Fed's standpoint, it makes them feel more comfortable, and politically, Bush hasn't used all the resources in the TARP," he said.

Asked whether GM thinks using the TARP money for direct loans or as collateral on loans from the Fed would provide the automaker with enough help in the short-term to avoid a collapse, GM Spokesman Greg Martin on Saturday replied "Yes."

The company's financial staff worked over the weekend exploring options with Treasury officials.

GM announced Friday it would cut an additional 250,000 vehicles from its first-quarter production schedule — a third of its normal output — by temporarily closing 20 factories across North America. The move affects most plants in the U.S., Canada and Mexico.

"If the administration can convince itself that a bankruptcy could be an orderly proceeding, then they could let it happen," Reinhart said.

The Bush administration, which has just weeks left in office, wants to try to avoid a disorderly bankruptcy.

"It's possible that the administration won't do anything," Reinhart said, listing long-running problems with the industry. "If the administration can convince itself that a bankruptcy could be an orderly proceeding, then they could let it happen."

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