WASHINGTON (Reuters) - Automakers seeking $25 billion in U.S. government loans won crucial support on Wednesday from the Senate leader as Detroit manufacturers said “tens of thousands” of jobs could be at risk due to a weak economy and tight credit.
“I think it is extremely important that we do something,” Senate Majority Leader Harry Reid told reporters when asked about prospects for helping all automakers, but especially GM, Chrysler and Ford.
Separately, the chief executives of Ford Motor Co (F.N) , Alan Mulally, and Chrysler LLC’s Robert Nardelli, said they were “pleased” and “encouraged” after making their case to House of Representatives Speaker Nancy Pelosi later in the day. General Motors Corp G.M CEO Rick Wagoner also attended the meeting.
“I thought the session went extremely well,” Nardelli said. “I think the conversations have been candid and straight forward.”
Reid, a Nevada Democrat, said the measure could wind up on a must-pass spending bill that is expected to come before members of the House of Representatives and the Senate before the end of next week. House leaders have made similar statements.
Democratic leaders said they would like to set aside between $3.8 billion and $7.5 billion in taxpayer funds to cover default risk and activate the $25 billion in financing. They hope to attach a provision to the spending legislation.
Pelosi, who expressed support for the automakers last week, said the money would be well invested in future technologies.
“It’s not a bailout,” she said after the meeting.
Shares of GM and Ford closed down about 8.3 percent and about 2.6 percent respectively on the New York Stock Exchange on Wednesday amid a broad market decline. Privately-held Chrysler is controlled by Cerberus Capital ManagementCBS.UL.
Credit assistance was authorized in last year’s energy law to help all automakers produce more fuel-efficient vehicles. The government mandated in that legislation that fuel efficiency improve by 40 percent by 2020 to improve U.S. energy independence.
Due to poor finances and worsening economic and credit market conditions, Detroit automakers have found commercial financing too expensive. They have reached out to Congress to approve the low-interest loans now.
Foreign rivals are not lobbying the issue. At least one, Honda Motor Co Ltd’s (7267.T), told the Reuters Autos Summit in Detroit that it has “no need” for the government loans.
U.S. manufacturers insist the help is not a bailout, although a key lawmaker said on Tuesday that some members, concerned about turmoil and taxpayer funded rescues in the mortgage, financial services and insurance industries, want assurances that the auto loans would not constitute a rescue.
Top executives of GM, Chrysler and Ford have been in Washington this week to lobby members of Congress, pressing the case that the loans would be repaid — with interest — and would promote American energy independence.
“Your urgent attention to this issue is critical to the future of the American economy and the manufacturing sector,” the chief executives of the Detroit automakers said in a letter to Pelosi released before their meeting.
“Our companies are committed to transforming our businesses and making major investments in the U.S. to produce these new fuel-efficient vehicles,” Wagoner, Mulally and Nardelli said.
But they also warned in the letter that overall economic weakness, high gasoline prices, tight credit and rising commodity prices could damage them further financially, if they cannot not raise capital. They said these unchecked financial pressures “have the potential to severely impact tens of thousands of employees.”
Republican presidential candidate John McCain, an Arizona senator, also underscored the importance of helping the industry during a stop in the political battleground state of Michigan on Wednesday. At a GM plant in Lake Orion, McCain said it was time for “a new generation of cars and for loans that will build the facilities” to make them.
Democrat Barack Obama also supports loan assistance for auto companies.
Automakers initially sought $50 billion in loans but backed way from that figure last week, sensing uneven support among lawmakers.
Additional reporting by Richard Cowan in Washington, Kevin Krolicki in Detroit, and Jeff Mason with McCain; Editing by Gerald E. McCormick, Richard Chang and Carol Bishopric