White House slams auto provision in House funding bill

WASHINGTON (Reuters) - The White House on Wednesday slammed legislation in the U.S. House of Representatives that would try to help Chrysler and General Motors dealerships facing closure stay in business.

The House is expected to vote this week on a must-pass annual spending bill that includes a provision aimed at restoring the rights of the hundreds of dealerships affected by the two U.S. automakers' historic bankruptcies.

The White House criticized the provision as setting a "dangerous precedent, potentially raising legal concerns, to intervene into a closed judicial bankruptcy proceeding on behalf of one particular group at this point."

However, the White House statement stopped short of including a veto threat. Chrysler yanked franchises from almost 800 dealerships and GM is trying to winnow its dealerships to 3,600 by the end of 2010, from nearly 6,000 in May.

The House provision would restore the economic rights of the dealers before the bankruptcies, ensure they have the right to recourse under state law and require the two automakers to reinstate franchise agreements before the bankruptcies.

It also states that the legislation is not intended to affect the transfer of assets to the new auto companies formed out of the bankruptcy proceedings. The provisions were attached to the annual funding bill for the U.S. Treasury, which has overseen the bankruptcies and loaned the automakers money.

While the legislation appeared to have significant support in the House, it was unclear if there were similar feelings in the Senate.

On Tuesday, Senate Majority Leader Harry Reid offered little solace to the shuttered dealers, noting that "when you have a bankruptcy, there are winners and losers, that's what happened and there were some losers.

"We'll be happy to take a look at it but it is nothing that's certainly on the top of the agenda in the Senate at this time," Reid said of the House effort.

(Reporting by Jeremy Pelofsky, editing by Bill Trott)