Washington: US Senate Democrats took the first step toward bailing out the nation’s crippled auto industry on Monday by proposing a $25 billion loan program, a plan that faces stiff political headwinds with millions of jobs potentially riding on the outcome.
With the year’s congressional calendar down to a few days, lawmakers and the Bush administration sparred over the best way to extend help to General Motors Corp, Ford Motor Co and Chrysler LLC.
“We’re surprised that Senate Democrats would propose a bailout that fails to require automakers to make the hard decisions needed to restructure and become viable,” White House spokeswoman Dana Perino said.
The Senate bill would, however, impose conditions. The government would take warrants for shares in exchange for aid, which would come with limits on executive compensation and a prohibition on the payment of dividends.
Automakers would also have to submit plans on how they intend to remain competitive, pummeled by plunging sales, little access to credit and a weakening economy.
Executives from the three companies are expected to amplify their calls for help at congressional hearings beginning on Tuesday.
Carl Levin of Michigan, the plan’s chief advocate in the Senate, said the proposal to amend the Treasury Department’s existing $700 billion rescue plan for financial services firms is the most efficient way to help auto manufacturers.
House Democratic leaders, led by House Financial Services Committee Chairman Barney Frank, released a draft of almost identical legislation later on Monday.
But the White House and many Republicans favor amending another law - one approved in September to extend automakers $25 billion in technology loans to retool factories and make more fuel efficient cars.
A rescue package for US automakers could avert another stock market plunge like the one seen after Lehman Brothers’ collapse in September.
“The reason people think failure could be cataclysmic is that there are so many companies that are tied to the auto industry,” said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco.
The Senate proposal comes as GM said it would delay incentive payments to its US dealers by two weeks in an effort to “gain some cash liquidity” for the fourth quarter.
The payments for dealer incentives, which are made on a weekly basis, will be delayed from 28 November until 11 December, GM spokesman Pete Ternes said.
Liquidity is the key concern for the automakers as their remaining cash reserves dwindle.
The companies and their allies in Congress argue a bailout is justified on grounds they back one in 10 US jobs.
GM, Chrysler and Ford employ close to 250,000 people in the United States and supporters claim they touch more than 4 million other jobs including suppliers, dealers, car haulers and rental companies.
Many parts suppliers and dealers have agreements with transplanted automakers as well, potentially interrupting the business of competitors to the Big Three in the short term.
A potential threat to the integrated supplier network prompted Japan’s Honda Motor Co Ltd to support an aid package for its US.
But segments of the public disagree that a rescue is in order. In interviews, Americans said the planned rescue was unfair and would make it harder to reform the US automakers.
US automakers say they are urgently trying to overhaul their businesses to meet a global demand for fuel efficient products, like better performing gasoline engines, electric cars and more hybrids.
But industry executives say they may never get there unless the bailout is approved. They add that the shock of any collapse will shake the economy.
All three companies have rejected reorganizing under bankruptcy protection.
For the Senate measure to pass, it must gain support from both Democrats and Republicans in the narrowly divided chamber where 60 votes are needed to overcome any procedural hurdles.
Aides and lawmakers have expressed doubt about the Democratic effort with so little time and White House opposition.