WASHINGTON (Reuters) - The White House and Democrats edged toward agreement on Monday to rescue U.S. automakers by extending emergency loans but their plan leaves key restructuring decisions to the incoming Obama administration.
Three days of talks between congressional Democrats and Bush administration officials neared conclusion with a draft bill, obtained by Reuters, outlining temporary low interest loans, terms for repayment and oversight submitted for final White House review.
The final figure was still being worked out with the plan worth between $14 billion and $17 billion.
The rescue aims to avert the threatened collapse of General Motors Corp and Chrysler LLC, saving thousands of factory and millions of related jobs in the U.S. recession.
“This is no blank check or blank hope,” Senate Majority Leader Harry Reid said as he reconvened the chamber to consider a measure later in the week.
“If the companies fail to develop a plan that will lead to long-term competitiveness, profitability, if they fail to stick to that plan, the loan can be recalled,” Reid said.
Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services committee, told CNBC television an agreement would come by day’s end.
Senior Democratic and Republican aides believe the bailout will pass Congress.
Both GM and Chrysler have requested billions by month’s end to boost their dwindling cash reserves. Ford Motor Co is requesting a line of credit that would not be tapped unless its finances deteriorate further than expected in 2009.
Wall Street responded positively with the Dow Jones industrials up more than 295 points partly on auto developments. Ford stock was up 25 percent to $3.39 just before the close, while GM was 20 percent higher to $4.90.
The plan would release loans later this month and establish a board headed, by a “car czar,” to oversee the aid and compliance with terms.
The proposal also sets a March 31 deadline for the companies to submit detailed plans of how they intend to cut costs and further overhaul their businesses to compete with nimble and better capitalized rivals.
The plan initially lacked tough medicine some Republicans had sought, including specific requirements for bondholders and additional cost cuts from the United Auto Workers.
Nevertheless, GM seems headed for a wrenching restructuring that will hit investors, creditors, dealers and workers almost as hard as if the top U.S. automaker had sought bankruptcy.
The UAW union is seeking a stake in GM and a board seat as it offers new concessions. The union also said it will pose another round of buyouts in 2009. Union leadership wants rank-and-file to ratify new contract provisions for GM by the end of March.
On Sunday, the lead senator on bailout legislation, Banking Committee Chairman Christopher Dodd, said he thought Chrysler was “basically gone” and recommended it revive merger talks with GM. He also said it was time for GM’s chairman chief executive, Rick Wagoner, to step down.
Many lawmakers questioned Chrysler’s viability as a stand-alone company. But Chrysler CEO Bob Nardelli said on Monday in a message to employees, seen by Reuters, that Chrysler’s business plan would allow it to survive as a “stand alone” entity although company officials say alliances are crucial to industry’s future.
GM and Chrysler explored a merger in October before dropping the idea as sales collapsed and GM began to churn through cash faster.
Negotiators responded to lawmaker frustrations with what members have characterized as an entrenched business culture at GM, Ford and Chrysler. Many lawmakers doubt they would be worthy of aid if the country was not in recession. Last week’s startling jump in jobless claims reversed what had been an uncertain bailout effort on Capitol Hill.
Lawmakers blame the companies for failing to innovate and leaving industry vulnerable to downturns and failure.
GM unveiled an unusually frank advertisement on Monday acknowledging it had “disappointed” and sometimes even “betrayed” American consumers by letting “our quality fall below industry standards and our designs became lackluster.” (ID:nN08379012)
The grim outlook for automakers spread to Italian carmaker Fiat which said it was too small to survive alone, drawing attention to the prospect of mergers, Sweden reportedly mulled a rescue package for Volvo and Saab.
Mitsubishi Motors Corp will suspend production at its Illinois plant for seven weeks next year in response to sales slump, the company said on Monday.
Daimler AG said its main plant would adopt a shorter work week for three months and Toyota was said to be eyeing spending cuts of up to 40 percent.
The plan also will seek taxpayer protections in the form of preferred shares for the government and a prohibition on shareholder dividends. Neither Ford nor GM pay dividends now.
Interest on loans would be 5 percent for five years and 9 percent after that, the same conditions Democrats proposed in an earlier bailout attempt.
Additional reporting by Rachelle Younglai, Donna Smith, Richard Cowan and Matt Spetalnick in Washington and Kevin Krolicki, Soyoung Kim and Poornima Gupta in Detroit; Editing by Tim Dobbyn