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Auto rescue being worked on quickly: Paulson

(Agencies)
Updated: 2008-12-17 10:05

WASHINGTON  – A government bailout for automakers was being assembled as quickly and carefully as possible, Treasury Secretary Henry Paulson said on Tuesday as a new ratings report showed that bankruptcy was the most likely restructuring scenario for the industry.

Chrysler assembly workers leave the plant after their shift at the Detroit Axle Plant in Detroit, Michigan December 12, 2008. [Agencies]

The Bush administration came under renewed pressure from fellow Republicans who urged the government extract stiffer concessions from labor and other groups than Democrats and the White House previously agreed were needed to qualify for aid.

"The automakers will get the money as quickly as we can prudently do it," Paulson said in interview on CNBC television. "We need to do this but we need to do it right.

Related readings:  Detroit automakers await deal on auto loans  US auto bailout remains elusive  White House promises last-ditch auto rescue  $14b auto bailout plan dies in Senate

President George W. Bush said earlier in a CNN interview the United States was in "a huge recession" and that he did not want to worsen the economy with an automaker collapse.

"On the other hand, I'm mindful of not putting good money after bad," Bush said. "So we're working through options."

The Bush administration has said it may use part of the $700 billion fund established in October to stabilize the financial services sector to help automakers.

General Motors Corp and Chrysler LLC say they need billions of dollars in immediate bridge loans to avert near-term collapse. Ford Motor Co is seeking a line of credit but cannot afford to see its rivals fail due to the threatened disruption of supplier and other networks if GM or Chrysler collapsed.

GM shares continued to rise on bailout expectations, closing 4.2 percent up at $4.25 on the New York Stock Exchange on Tuesday. Ford shares closed down 1.6 percent at $3.13. Chrysler is privately held by Cerberus Capital Management.

Senior Democratic lawmakers said on Monday they expected action from the Bush administration as early as Wednesday on financing that would likely take the stricken companies through early 2009. Larger restructuring issues would then be addressed by the next Congress and the Obama administration.

The Senate failed last week to approve a $14 billion bailout package for Detroit, leaving the Bush administration as the only option for immediate help.

CONDITIONS FOR FINANCING

The administration said a decision was not imminent.

Democrats expect the administration to preserve conditions for financing that were negotiated last week and included in legislation approved by the House of Representatives. A majority of Senators also supported that approach in a procedural vote, but the backing was not sufficient to push the measure through Congress.

The House-approved text included requirements such as the appointment of a trustee, or "car czar" to oversee disbursement of funds and compliance with loan terms.

The companies would be required to file restructuring plans by March 31 to qualify for further help and demonstrate their commercial prospects. The "car czar" could recommend bankruptcy if the plans were unsatisfactory.

Some conservative Republicans want tougher concessions than planned from the United Auto Workers. They also believe the "car czar" should have the power to push the companies into bankruptcy, if necessary.

In a letter to Bush on Tuesday, several Republican senators said the administration should insist on strict conditions to force major business reforms.

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

A report by Moody's Investors Service said on Tuesday that government help paired with prepackaged bankruptcy was the industry's most likely restructuring scenario.

The report said without a prepackaged bankruptcy -- when concessions and financing are arranged before a court filing -- the automakers are headed for a "freefall" bankruptcy that would trigger a spike in US unemployment.

Moody's said there is about a 70 percent chance of a prepackaged bankruptcy coupled with government assistance, and just a 25 percent chance of a government bailout without a bankruptcy.

Other governments are rushing to support car manufacturers struggling to cope with falling sales and difficulties shifting their stocks of unsold vehicles. Data on Tuesday showed that European new car sales dropped by a quarter in November.

France has said it is ready to take action following a meeting with top industry executives in return for commitments to keep production in the country. But French Economy Minister Christine Lagarde signaled that she still needed convincing.