Bailout debate simmers as GM pares output

By David Bailey and John Crawley

DETROIT/WASHINGTON (Reuters) - Detroit automakers began work on the turnaround plans demanded by Congress in return for a possible $25 billion rescue as General Motors Corp said it will cut production more deeply and drop two of its controversial corporate jets.

Pushed to the brink of failure by a plunge in auto sales, GM said on Friday it would idle five North American plants for more time to cut production and keep inventories.

The top U.S. automaker also said it would return two of its leased corporate jets amid intense criticism this week over GM executives' deluxe arrangements for traveling to Washington to plead for a federal bailout.

GM is still leasing three corporate jets.

Congressional leaders agreed on Thursday to give Detroit automakers until next month to make their case for a rescue but demanded that GM, Chrysler LLC and Ford Motor Co show they have business plans that can keep them out of bankruptcy.

House Speaker Nancy Pelosi said she and Senate Majority Leader Harry Reid, the leaders of the Democratic majority, were sending a letter to the CEOs of the Detroit Three detailing what the high-stakes turnaround plans need to show.

"It will be up to them how they respond," Pelosi told reporters in Washington.

The restructuring plans will have to show how management and labor are making concessions in order to clinch the government rescue portrayed by automakers as the only alternative to bankruptcy and massive job losses.

"Everybody has to participate in ensuring the viability of the auto industry," Pelosi said.

She added: "This isn't to be life support for three months, it's about viability for a long time to come," she said.

Democratic leaders threw down the blunt ultimatum to Detroit after failing to persuade the White House and congressional Republicans to support using some of a $700 billion financial rescue plan for an autos bailout.

Analysts said GM, Ford and Chrysler now have to demonstrate that investors, creditors, management and the United Auto Workers union would share in the sacrifice and cautioned that the window for a bailout was closing fast.

"Can the U.S. automakers provide a convincing plan?" Deutsche Bank analyst Rod Lache asked in a note to clients. "Based on the risks involved, we are not willing to place strong odds on the potential for a bailout before January."

That could put the decision on whether and how to save Detroit with the administration of President-elect Barack Obama, who supports a bailout hinging on industry reform but has managed to steer clear of the bruising political debate.

A spokesman for Obama's transition team said on Friday that the incoming administration was not exploring the possibility of having the government support a prepackaged bankruptcy filing for the automakers, an alternative some analysts have urged as a way for GM and Chrysler to shed excess production capacity, brands, workers and dealers.