Senate Bails on Auto Bailout: What Next?

White House may reconsider using TARP money to prevent industry collapse.

ByABC News
December 12, 2008, 11:26 AM

Dec. 12, 2008— -- The White House said today it would be "irresponsible" to let Detroit's automakers collapse and suggested it will use a bailout fund it had previously said was not meant for the sinking car industry.

The revised view came the morning after senators killed an effort to provide $14 billion in emergency loans to Detroit automakers when a last-ditch attempt to renegotiate the deal collapsed. The House had passed its version of the measure on Wednesday night but the Senate was unable to follow suit.

Administration officials were already in officials from General Motors and Chrysler on Friday in the wake of last night's defeat in the Senate, although the White House made it clear that no decision had been made to intervene.

"We will consider other options if necessary -- including use of the TARP program -- to prevent a collapse of troubled automakers," White House press secretary Dana Perino said today.

The White House had previously resisted calls to use funds from the Troubled Asset Relief Program, passed into law this fall to rescue the financial industry, and had insisted lawmakers boost the auto industry by other means, preferably by using part of a $25 billion already allocated to the car industry for a fuel efficiency program.

But today, the White House called the Senate's failure to act "disappointing" and said "it would be irresponsible to further weaken and destabilize our economy at this time."

"The approach in that legislation provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds go only to firms whose stakeholders were prepared to make the difficult decisions to become viable, competitive firms in the future," the White House statement said.

"Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms."

Administration officials are considering a range of options that fall into three categories. The administration 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 that would aim to accomplish what Congress failed to do, such as calling a car czar, labor concessions and creditor concessions. The administration could also turn to "an orderly bankruptcy."

"If we decide to do it, when, how and under what conditions are open questions," said a senior administration official on Friday.

"Nobody should expect easy terms," the official added.

Without any help from the government, others were quick to mull what might come next and whether the struggling auto industry will survive the winter. On Friday morning, General Motors announced it would remove approximately 250,000 vehicles from production during the first quarter of the new year, a move that would impact 20 of its plants in the U.S., Canada and Mexico, according to the company's release.

This morning United Auto Workers President Ron Gettelfinger also weighed in on the collapse of negotiations. In the end, the sticking point in the Senate was the refusal of the UAW to agree to steep wage cuts by a date certain in 2009.

"As everyone's well aware, the auto industry around the world is in peril," Gettelfinger said.

"We could not accept the effort by the Senate GOP caucus to single out workers and retirees for different treatment."

Gettelfinger added that UAW is calling on Treasury Secretary Henry Paulson or the Federal Reserve to step in to "prevent the imminent collapse of the auto industry."

Meantime, there has been bipartisan outrage over the way the first $350 billion of the $700 billion for the TARP program has been spent. And under the law that created TARP, Congress can vote to refuse access to the second $350 billion.

On Capitol Hill this morning, there was widespread expectation that the Administration will seek access to the second half of the money for that program.

While there's a good chance Congress would vote against giving Paulson the money due to its disapproval of the way in which the first half was spent, the likelihood of doling out the funds greatly increases if Paulson decides to use the remaining funds in the first chunk of money to help the automakers.

There happens to be about $15 billion of the first $350 billion left.

If a request for access to the other half of the money comes from the White House, it's expected that Congress could come back in session for one last act.