Bush may tap bailout fund to aid automakers

By Matt Spetalnick

WASHINGTON (Reuters) - The Bush administration said on Friday it could be willing to provide emergency aid to the teetering U.S. auto industry, keeping open the prospects for a bailout the day after Congress failed to approve a deal.

Warning of dire consequences for the recession-hit U.S. economy if the once-mighty automakers collapsed, the White House -- in a reversal of policy -- said it was ready to consider dipping into a $700 billion Wall Street bailout fund to help keep the companies afloat.

"The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry," White House spokeswoman Dana Perino said.

Democratic leaders and the main U.S. auto workers union appealed to Bush's Republican administration -- now in its final weeks before turning over to Democratic President-elect Barack Obama -- to provide emergency funds after a Senate deal to save Detroit's Big Three collapsed in acrimony late on Thursday.

The failure of the $14 billion bailout plan in Congress sent markets reeling around the world. Shares in Toyota Motor Corp, the world's biggest carmaker, lost a tenth of their value, and European automakers also closed sharply lower.

But signs that the White House and U.S. Treasury Department might mount a last-ditch effort to help the carmakers buoyed Wall Street.

Analysts say that without quick help, two of the country's major car manufacturers -- General Motors Corp and Chrysler LLC -- could face bankruptcy. Ford is in slightly better financial shape but says it needs a major line of credit.

Polls show Americans split on bailing out the U.S. automakers, a highly visible troubled sector in a country grappling with recession. The auto companies say one in 10 jobs in the United States are linked to their industry.

But the companies are widely criticized for fighting tougher fuel efficiency standards and poor model designs that have left them with products losing popularity with consumers.

In response to the company's many struggles, GM said it would cut its first-quarter North American production by 60 percent.

President George W. Bush can ill afford the failure of one or more of the automakers as he prepares to leave office on January 20 with a presidential legacy already battered by the grim economy and the unpopular war in Iraq.

Responding to the congressional impasse, the administration said it was considering tapping the Troubled Asset Relief Program (TARP) financial industry fund, whose use for an auto bailout it had earlier vowed to oppose.

"Given the current weakened state of the U.S. economy, we will consider other options, if necessary including use of the TARP program, to prevent a collapse of troubled automakers," Perino said.

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Democratic leaders welcomed signs that the White House wanted to throw the industry a lifeline, with Sen. Chris Dodd telling reporters "we still have an opportunity to do this and we have an obligation to try."