Bush considers 'orderly' bankruptcy of car industry

The Bush administration is looking at "orderly" bankruptcy as a possible way to deal with the desperately ailing US car industry, Treasury Secretary Henry Paulson said.

With General Motors and Chrysler awaiting a White House decision on billions of dollars in emergency loans, Mr Paulson said bankruptcy for Detroit's car firms should be avoided if possible but an orderly reorganisation may be the best option to stop a total collapse.

Mr Paulson said it was too risky to simply let the car makers fail.

"When you look at the size of this industry and look at all those that it touches in terms of suppliers and dealers... it would seem to be an imprudent risk to take," he said.

President George Bush, asked earlier about a car maker bail-out, said he had not decided what he would do, but did not want to leave a mess for Barack Obama who takes office a month tomorrow.

A White House decision on helping the troubled car makers could come as early as today.

Mr Bush, like Mr Paulson, spoke of the idea of bankruptcies orchestrated by the US government as a possible way to go - without committing to it.

"Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring," he said. "These aren't normal circumstances. That's the problem."

Mr Paulson said Mr Bush wants to avoid car makers filing for bankruptcy protection but that the number one priority was putting the industry back on a viable path.

White House press secretary Dana Perino addressed the bankruptcy question yesterday and emphasised there were still several possible approaches to assisting the car makers, including short-term loans from the Treasury Department's 700 billion dollar (£466 billion) Wall Street bail-out program.

The Big Three car makers said that bankruptcy was not the answer, as did an official of the United Auto Workers who called the idea unworkable and even dangerous. GM said a report that it and Chrysler had restarted talks to merge was untrue.

House Speaker Nancy Pelosi said Mr Bush has the legal authority to act now, and should attach the accountability standards that were included in a 14 billion dollar House-passed and Bush-supported car maker bail-out that died in the Senate last week.

That plan would have given the government, through a Bush-appointed "car tsar," veto power over major business decisions at any car company that received government loans.

The comments in Washington came a day after Chrysler announced it was closing all its North American manufacturing plants for at least a month as it, General Motors and Ford await word on government action.

General Motors also has been closing plants, and it and Chrysler have said they might not have enough money to pay their bills in a matter of weeks.