President-elect Barack Obama is pushing Congress this year to approve as much as $50 billion to save cash-starved US automakers and appoint a czar or board to oversee the companies, a move that would require President George W Bush’s support, people familiar with the matter said.
Obama’s economic advisers are now convinced that if General Motors Corp doesn’t get a financial lifeline soon, it will have to file for bankruptcy by the end of January. And if the companies don’t get almost $50 billion, Obama will be dealing with the issue again by next summer.
Any czar or board would be patterned after the bailout of Chrysler in 1979 and New York City in 1975. Advisers such as former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Lawrence Summers are said to be telling Obama that the cash is urgently needed now.
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. Obama also would need strong support from 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 most of the money would be drawn from the $700 billion financial rescue package Congress passed last month or from newly allocated funds.
By injecting himself into the talks about how to save General Motors, Obama is making an exception to his decision to steer clear of policy-making until he takes office.
The president-elect also wants the Federal Reserve to extend emergency loans to General Motors, Ford Motor Co and Chrysler LLC, according to Obama aides who spoke on condition of anonymity.
More From This Section
The failure of those companies would likely bring down parts-makers, dealerships and suppliers in addition to inflicting a deep psychological blow.
If the plan were to offer no strong guarantees against layoffs it would likely draw fire from unions. But Obama advisers have been persuaded that the impact on current workers and retirees would be staggering if the companies went into bankruptcy.
Any auto czar or committee would presumably have the job of overseeing a restructuring of the auto industry.
“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 Jan. 20 to address other matters, on this one they need to move quickly.”
Obama, 47, has repeatedly insisted there can only be “one president at a time.” He is sending two representatives, former Iowa Republican Rep. Jim Leach and former secretary of state Madeleine Albright to this weekend’s economic summit of leaders of the Group of 20 nations in Washington rather than attend himself.
GM risks going bust before year-end without help from Washington. Shares of the biggest US automaker reached a more than 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,” said GM spokesman Tony Cervone, who said he’s not aware of the government’s plans.
Chrysler spokesman Shawn Morgan said the company is in discussions with the Obama transition team and members of Congress.
“We look forward to a discussion addressing the immediate liquidity crisis facing the industry, as well as the competitiveness of the auto industry,” Morgan said.
“We need to wait and see what comes from Congress,” said Ford spokesman Mike Moran.
Ford and Chrysler both likely would be forced into bankruptcy eventually if GM were to fail, Mark Oline, a Fitch Inc. credit analyst, said in an interview.
Enthusiasm among Obama’s economic advisers for a concerted rescue for the auto industry was sparked at a November 7 meeting in Chicago, according to person familiar with the meeting. Michigan Governor Jennifer Granholm also pressed for additional aid.
A GM bankruptcy could send the US jobless rate as high as 9.5 per cent, up from a 14-year high of 6.5 per cent in October, and produce a recession comparable in length to that of 1980-82, according to Behravesh.
“If it does collapse, it could make the recession deeper and longer,” he said.
Obama, an Illinois senator, pressed Bush on the urgency of an assistance package during their November 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 which 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 yesterday in a press conference. “My focus is on the financial sector, getting credit going, getting lending going.”
Congressional Democrats, meanwhile, are pushing for legislation to help the automakers. House Speaker Nancy Pelosi called for congressional action, saying failure by one or more of the big U.S. automakers would have a “devastating impact” on the US economy. Assistance must be conditioned on “rigorous independent oversight” of carmakers and restrictions on executive compensation, she said in a statement.
“A collapse of the American automobile industry would be the worst possible thing that could happen at a time when we are already weakened,” Frank, a Massachusetts Democrat, said in an interview on Bloomberg Television.