Bush steps in to sanction rescue for US car-makers

Detroit given White House lifeline as Congress says no
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The Independent Online

The US government's $700bn (£468bn) bailout for Wall Street will be stretched to cover a rescue of Detroit's collapsing car-makers, the White House signalled yesterday after Congress failed to deliver an emergency funding package to stave off the bankruptcy of General Motors and Ford.

GM hired bankruptcy advisers and stocks fell around the globe after Republicans in the Senate blocked a $14bn deal, but the company was still hanging on by a thread last night as talks about a bailout continued.

Industry executives and analysts have warned that a bankruptcy filing could cause a chain reaction that would force all three big Detroit car companies into liquidation, bankrupt scores more suppliers and dealers across the US, and potentially add hundreds of thousands or even millions more people to the growing numbers of jobless.

Sceptical Republicans, though, have demanded significant concessions from bondholders and unions before agreeing to government loans. Talks about wage reductions broke down late on Thursday. Ron Gettelfinger, president of the United Auto Workers union, complained he had been "set up" as the fall guy for the failure, and urged the Bush administration to act fast before GM and Chrysler suppliers called in overdue invoices and short-term credit, and stopped doing business with the firms.

"We need action sooner than later," he said. "The 'run on the banks' scenario is a much bigger issue than people realise. If suppliers don't think they can operate, they are not going to deliver the goods, and if they don't deliver the goods, plants are going to go down."

GM and Chrysler have both said they will run out of cash by the new year. Mr Gettelfinger insisted that arguments about wages were a distraction and should wait until a White House-appointed "auto tsar" can bring all the stakeholders together to negotiate a restructuring. "If we worked for nothing, it wouldn't help them limp into January," he added.

Asian stock markets fell by between 4 and 6 per cent overnight after the collapse of the Senate talks, which were aimed at freeing up previously agreed loans in return for bondholders and the workers' retirement benefits fund agreeing to convert their debts into shares in the car companies.

Within hours, however, it seemed the focus of negotiations would simply shift from Congress to the White House, allowing conservative Senators to wash their hands of a bailout of Detroit with taxpayers' money.

George Bush's press spokeswoman, Dana Perino, said: "Under normal economic conditions, we would prefer that markets determine the ultimate fate of private firms [but] a precipitous collapse of this industry would have a severe impact on our economy."

The Treasury, too, signalled a U-turn in its opposition to tapping the Wall Street bailout fund, the Troubled Asset Relief Progamme (Tarp). "Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," a spokesman said.

Tarp was originally designed to buy up the toxic mortgage assets held by banks, whose plunging value led to the credit crisis. However, the Treasury ripped up that plan and instead used the money to invest directly in banks, to make bridging loans to the nationalised insurer AIG and to fund a Federal Reserve programme of intervention in credit markets. The Treasury has the authority to use Tarp funds as it sees fit, although bailing out Detroit was clearly not in lawmakers' minds when they passed the Bill in October.

GM, Ford and Chrysler welcomed the Treasury's change of heart. "We are prepared to work closely with the administration on possible solutions that could prevent further damage to our nation's economy," GM said.

The crisis facing the "big three" car-makers has intensified recently as the stalled economy scares potential buyers and the credit crisis blocks access to debt markets. It has also choked off car loans to potential buyers, with the result that US sales have slumped by more than a third.

All three companies have operations in the UK, and these will be affected by the negotiations. General Motors UK, which owns Vauxhall, has admitted it is "waiting for clarity" for its 5,000 workers and is in talks with the Government about securing guarantees.

Yesterday, a spokesman for the Government said ministers "want to do all they sensibly can" to help secure the future of the British car industry. He added: "We are monitoring the situation closely. It is unclear what the next steps in the US will be."

Any state intervention to help the biggest car companies would be exceptional. Britain is GM's largest European market and it sold almost 427,000 vehicles here last year, nearly 100,000 more than in Germany. Vauxhall has plants at Luton and Millbrook in Bedfordshire, and at Ellesmere Port in Cheshire. Ford said the fate of the US loan package "means nothing" for its British business. Chrysler UK did not return calls yesterday.

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