Treasury ready to help failing automakers

The Bush administration dropped its opposition to using the $700 billion bank bailout to provide financing for US automakers, after the Senate on Thursday failed to approve emergency loans.

“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,” Treasury spokeswoman Brookly McLaughlin said in an e-mailed statement.

The Treasury has used all but about $15 billion of the first half of the Troubled Asset Relief Program’s funds since the plan was enacted October 3. Treasury Secretary Henry Paulson has until today repeatedly resisted calls to use the program to aid the automakers.

While the Treasury’s one-sentence statement doesn’t mention the TARP, White House spokeswoman Dana Perino said earlier in a separate statement that the Bush administration is considering using some of the program to keep the auto companies afloat.

“Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms,” Perino said. “However, given the current weakened state of the US economy, we will consider other options if necessary, including use of the TARP program, to prevent a collapse of troubled automakers.”

The administration’s shift comes after repeated statements by Paulson that any injection of funds required a plan “that leads to viability.”

“The intent of the TARP was to deal with financial institutions and major systemic issues and getting lending going in capital institutions,” Paulson said in a November 13 Bloomberg Television interview. “Congress, I believe, should address the question of the auto industry.”

Emergency loans for General Motors Corp and closely held Chrysler LLC were rejected late yesterday after talks failed over Republican senators’ demands that union workers accept a cut in wages next year. GM and Chrysler said they may run out of cash for their operations as sales head toward their lowest in 17 years.

Senator Bob Corker, a Tennessee Republican involved in failed efforts to forge a compromise last night, said providing TARP money without union commitments to restructure and wage concessions would make it “less likely” that the companies become more competitive. Such a move would put “good money after bad,” Corker said in a Bloomberg Television interview.

GM Chief Executive Officer Rick Wagoner told Congress last week, and has said repeatedly, that the Detroit-based automaker is trying to avoid bankruptcy at all costs. Lead director George Fisher said last week that GM considered and rejected the option and it was “way down the list” of alternatives.

Still, GM also has said it will lack the minimum $11 billion needed to pay bills by the end of this month, raising the prospect of bankruptcy should it fail to win a cash infusion. GM reported having $16.2 billion as of September 30.

An attempt to restructure GM in bankruptcy would end up as liquidation, because sales would plummet as buyers flock to solvent car companies, Wagoner has said.

Chrysler has said it will run out of money early next year. It ended the third quarter with $6.1 billion in cash and needs at least $3 billion on hand to operate, Chief Executive Officer Robert Nardelli told Congress on November 18.

Pressure was mounting on GM and Chrysler this week before the congressional failure as both faced demands from a small number of parts-makers for payments in advance because of the bankruptcy concerns, people familiar with the matter said.

Ford Chief Executive Officer Alan Mulally said his company doesn’t need emergency US loans, though he predicted last week that the automaker could be dragged into bankruptcy by the failure of GM.