US Treasury to Tap Bank Funds to Make Loans to Automakers
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Related subjects: Economic Recovery, Legislation, U.S. Politics, Webb Tisch Comments Off
After the $14 billion bridge-loan legislation failed in the US Senate, the White House faced the prospect of a major economic tipping point, should one or two of the three big Detroit automakers go into bankruptcy. In order to prevent an auto-industry collapse from sending the US economy into free-fall, the US Treasury has announced it will use some of the $700 billion allocated for rescuing struggling US banks to make a “bridge loan” that will tide the automakers over at least until early 2009.
The plan is not designed to save the automakers, but to make sure they do not go under before President-elect Barack Obama takes office next year. Obama will inherit the pervasive economic crisis and the responsibility of directing financial rescue funds to prop up businesses without which economic recovery will be significantly set back.
Senators in both parties had expressed severe discontent with the automakers, complaining of their inaction in keeping pace with the demand for more energy-efficient vehicles, smaller, lighter, more environmentally friendly vehicles. The bill reportedly failed to win the 60 votes necessary to be passed into law due to Republican senators’ insistence that workers be forced to take steep pay cuts.
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The United Auto Workers (UAW) leadership maintains they have been aggressively orchestrating a series of concessions that would be favorable to the corporate leadership, but that members of Congress were working with wildly inflated figures of real wages paid to UAW members. The UAW said that even if their membership “worked for free”, it would not prevent the automakers’ losing catastrophic sums of money in coming months, due to stagnant sales.
The senators refused to budge, and the bill failed to win passage, leaving the automakers to contemplate bankruptcy and the White House to find a way out. Many in Congress had insisted that the $700 billion allocated for financial rescue, noting that while hundreds of billions had been given to just a few institutions, the automakers were asking for a relatively modest loan, in hopes of staving off widespread economic failure.
The Detroit Free Press is reporting today that:
The White House said the economy is too weak to withstand the blow that the failure of one or more domestic automakers would cause and is forced to “consider other options if necessary,” including money authorized under the $700-billion bailout of Wall Street financial institutions.
General Motors and Chrysler LLC say they are on the verge of collapse without an immediate infusion of cash.
While Ford has signaled it may refuse government aid if it comes with strings attached, the company is also struggling to keep pace with its own costs. The TARP funds (the acronym for Troubled Asset Relief Program) were supposed to deal only with banks suffering precariously due to failing credit bases, but the feeling that time is running out has become increasingly pressing, as Chrysler and GM warn of falling into bankruptcy before the end of the month.
White House press secretary Dana Perino told reporters “A precipitous collapse of this industry would have a severe impact on our economy and it would be irresponsible to further weaken and destablize our economy at this time”, and as such the White House and Treasury were working to find a way to prop up the automakers for the near future.
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