Big Three Hit the Brakes Leaving Deadline Pressing

GM denies a report that it has resume merger talks with Chrysler.

December 17, 2008, 11:26 AM

Dec. 18, 2008— -- The White House described the condition of the country's carmakers today as "fragile," as negotiators struggled to hammer out a possible financial bailout package before the auto giants collapse.

Pressure grew for a deal as Chrysler announced Wednesday it will close all 30 of its manufacturing facilities in North America until Jan. 19. Chrysler's move to conserve cash will suspend production of its cars and trucks for the greater part of the month, affecting about 46,000 members of the United Auto Workers.

The Chrysler shutdown comes on the heels of a warning to dealers that the automaker may halt financing for stocking showrooms. Many dealers say that buyers are out there but that loans are unavailable, resulting in a 20 percent to 25 percent loss in sales. Meanwhile, Chrysler is burning through more than $1 billion a month.

And General Motors, which also faces the possibility of collapse without a federal rescue, said Wednesday it will delay construction of a factory in Flint, Mich., set to produce the plug-in electric Chevy Volt, in order to conserve cash.

The Wall Street Journal reported today that Cerberus Capital Management LP, which owns Chrysler, had resumed merger talks with General Motors in an effort to shed some of the expense and to convince Washington it is ready for drastic changes.

But GM promptly issued a statement denying that merger talks had restarted.

GM and Chrysler had been in talks earlier this year to combine in order to survive the recession and slowing U.S. sales, but financing emerged as one of the biggest obstacles.

Talks about a White House bailout for the two manufacturing giants has taken longer than a worried Detroit had hoped, but White House spokesman Dana Perino said today that the administration is aware of the urgency.

"It's clear that the automakers are in a very fragile financial condition and they're taking steps to deal with it," Perino said. "We're aware of their financial situation and are considering possible policy options to provide assistance in an appropriate way. As we've said, a disorderly collapse of the auto industry should be avoided."

For weeks, the carmakers have insisted that they face a real deadline. GM has told lawmakers it needs an infusion of $4 billion in taxpayer loans before the end of the year or the company will go bankrupt.

While many Americans and lawmakers alike have questioned the severity of the automakers' situation and whether they deserve federal aid, Chrysler and GM's announcements leave the fate of the entire auto industry unknown.

President Bush Wednesday said that the bailout must be resolved "relatively soon." But with Chrysler and GM suspending work, it leaves the deadline for a bill even more pressing.

Some of the GOP senators who killed a congressional bill to save American carmakers last week have written to the president to say they don't believe "any amount of money" will save the struggling car companies without major changes to how they operate.

The seven senators sent their letter to President Bush as the White House is considering whether to use a portion of the $700 billion in the Troubled Asset Relief Program to stave off the collapse of General Motors and Chrysler.

They were joined in lobbying the White House by more than two dozen Republican members of the House who wrote to Bush to say, "American taxpayers cannot afford to save every company facing financial peril."

The stiff opposition to the White House's potential use of money from the TARP fund for General Motors and Chrysler emerged as a decision on the funds has apparently lost some of its urgency.

After a frantic effort to win passage in Congress failed last week, there is no anticipation of an imminent auto deal.

White House spokesman Tony Fratto told ABC News this week that the people working on a possible rescue plan can't be rushed and don't like their choices.

"It's a huge industry, and both the problem and the potential solutions are complicated," Fratto said. "Congress is leaving the administration with suboptimal choices to deal with the issue."

But because Congress failed to act, Fratto explained, "we have a responsibility to deal with it."

The administration received a letter Tuesday from seven Republican senators urging the White House not to use TARP funds to tow GM and Chrysler back from the brink.

The letter was signed by Sens. Jim DeMint, S.C.; Jeff Sessions, Ala.; John Ensign, Nev.; Tom Coburn, Okla.; John Cornyn, Texas; Mike Enzi, Wyo.; and Saxby Chambliss, Ga.

Concern Over TARP Funds

The senators cautioned that without requiring "sufficient reforms" among automakers and the United Auto Workers, bailout funds would not make a dent in solving the industry's problems.

"Absent such restructuring, we do not believe any amount of money will succeed in saving these companies," the senators wrote.

In their own letter to the president, more than two dozen House lawmakers also voiced their concerns about using TARP money.

"Tempting as it is to step in with a federal bailout, American taxpayers cannot afford to save every company facing financial peril," the letter from the House lawmakers said.

The House members also argued that "The legislation allows the $700 billion to be used for leveraging 'financial institutions,' which auto manufacturers surely are not. Congress never voted for a federal bailout of the automobile industry, and the only way for TARP funds to be diverted to domestic automakers is with explicit congressional approval."

Ironing out what concessions will be required of the car companies and the workers in any potential deal is a sticking point. After the House passed its measure one week ago today, an effort to do so failed in the Senate when Republican senators insisted on sharp cuts for unionized autoworkers.

"Since labor makes up 10 percent of the cost of a vehicle, we agree that all stakeholders must come to the bargaining table," United Auto Workers president Ron Gettelfinger told ABC News. "The UAW has made difficult and challenging concessions in 2005 and 2007 negotiations, and we recognize that more may be required. However, we expect that the other stakeholders -- the board, management, suppliers, dealers and creditors -- must do their part as well, and they have some catching up to do."

Administration officials could provide a short-term fix to keep the companies afloat until next year, which would not necessarily be as much as the $14 billion in the congressional bill. They could also opt for a government-forced restructuring of the auto industry or decide to turn to "an orderly bankruptcy."

Perino said there was also the possibility of a "disorderly bankruptcy," but she said that was not the president's preference.

ABC News' Charles Herman contributed to this report.

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