Bush vows to avert auto industry failure
In U-turn, would tap $700b fund
WASHINGTON - Facing the potential collapse of the domestic auto industry in his final days at the White House, President Bush yesterday reversed course and signaled that he would provide short-term financial help to avoid what his spokeswoman called a "body blow" that the already weakened economy cannot withstand.
The White House and Treasury Department, responding to the US Senate's failure Thursday night to approve a $14 billion package of loans and lines of credit for the Big Three automakers, opened the door to a move they had ruled out for weeks - using part of the $700 billion approved to shore up financial institutions.
"Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," Treasury spokeswoman Brookly McLaughlin said.
"A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," added White House spokeswoman Dana Perino.
Their statements yesterday morning helped stabilize the stock market, which opened sharply lower but ended the day up almost 65 points.
The likely White House intervention was also welcomed by the auto workers union and by GM and Chrysler, which both have warned that they face imminent bankruptcy without federal help. (Ford has said it doesn't need an immediate loan.) GM announced yesterday that it will cut another 250,000 vehicles from its production plans in the first three months of 2009 by temporarily closing 21 plants in North America.
But the reversal infuriated some Republicans, who said Bush had sent mixed signals and who argue that the financial rescue fund was not intended to bail out auto companies.
Senator Bob Corker of Tennessee, a key Republican negotiator, said yesterday that the administration, by hinting that it would put in money if the bill failed, undercut his negotiations with the United Auto Workers for wage cuts that he and others say are needed to make the Big Three competitive.
The financial bailout fund has $15 billion available in the half that has been approved by Congress. The Treasury Department cannot touch the remaining $350 billion without going through Congress first.
Later yesterday, another White House spokesman said the Bush administration would examine financial statements from the automakers before making a final decision on any aid. There had been "absolutely no decision on what the nature of assistance will be or even if there will be assistance," spokesman Tony Fratto stressed in an interview. Any money would come with a series of conditions to ensure repayment, he said.
Bloomberg reported last evening that GM CEO Rick Wagoner spoke by phone yesterday with White House Chief of Staff Joshua Bolten and Treasury Secretary Henry Paulson about a short-term rescue plan.
"I'm very confident . . . that the White House will not allow this industry to collapse or go into an unplanned bankruptcy," Senator Chris Dodd of Connecticut, a key Democratic negotiator, said on Capitol Hill yesterday.
President-elect Barack Obama said in a statement that he was disappointed that the Senate failed to act but hoped for temporary aid to the auto industry, providing a bridge until the new Congress and his administration can deal with "the long-term restructuring that is absolutely required."
Perino, speaking to reporters aboard Air Force One as Bush traveled to Texas, said that "under normal economic conditions," the president would have let "markets determine the ultimate fate of private firms."
"However, given the current weakened state of the US economy, we will consider other options if necessary . . . to prevent a collapse of troubled automakers," she added.
She stressed that the White House would help only if concessions were made by all parties, including the automakers and unions.
The focus turned to the White House after a last-ditch effort to help the automakers failed in Congress.
On Wednesday, the House easily passed a measure, negotiated by the Bush administration and congressional Democratic leaders, that offered $14 billion in loans and lines of credit and called for a "car czar" appointed by the president to oversee a sweeping restructuring of the automakers into leaner companies that produced more fuel-efficient vehicles. But Thursday night, the Senate, which is narrowly controlled by Democrats, failed to muster the needed 60 votes to stop a filibuster, coming up with only 52.
Many of those who opposed the measure were Republicans who came from states with low union membership and foreign-owned auto plants.
The two Massachusetts senators were not present to vote on the bill. Senator John F. Kerry was traveling in Poland for a climate change conference, but would have returned to vote in favor of the bill if necessary, a spokeswoman said yesterday. Senator Edward M. Kennedy, who earlier this year underwent brain surgery for a malignant tumor, does not plan to return to the Senate until January but would have supported the loans, a spokeswoman said.
The bill was doomed after it was opposed by Senate Republican Leader Mitch McConnell, whose home state of Kentucky has a 7,000-employee Toyota plant. Bush, a lame-duck president with low approval ratings, did not have the political power to push McConnell to back the loan package.
An alternative bill was then proposed by Corker, whose home state of Tennessee was picked earlier this year as the site of a Volkswagen plant and already has a large Nissan presence. Corker called on the UAW to accept wage cuts by next year to bring its members more in line with nonunion workers at foreign-owned plants.
The UAW - which claims more than 1.1 million active and retired members in the United States, Canada, and Puerto Rico - objected, arguing that it has already made major concessions with automakers that are now on track to reach wage parity with the foreign companies.
Dodd and other Democrats blamed a handful of Senate Republicans for the impasse by insisting on unfair wage cuts.
The unions and Republicans have been at odds all year. The UAW gave $1.9 million to Democrats, compared with $11,500 to Republicans, during the 2008 campaign, according to the Associated Press. But the Big Three automakers split their contributions nearly evenly between the parties, according to the Center for Responsive Politics.
In a Detroit news conference yesterday, UAW president Ron Gettelfinger accused GOP senators of trying to break his union, pointing in particular to senators from the South who he said carried the water for foreign automakers. The UAW singled out Senator Richard Shelby, the Alabama Republican, whose home state has spent millions of dollars in tax subsidies to lure plants owned by Honda, Hyundai, and Mercedes-Benz.
"They thought perhaps they could have a two-fer here maybe," Gettelfinger said of Republican opponents. "Pierce the heart of organized labor while representing the foreign brands."
Michael Kranish can be reached at kranish@globe.com. 