The White House, stung by its loss in the Senate and the prospect of falling markets, opened the door Friday to possibly using Treasury financial market rescue funds to prop up the auto industry until a new Congress convenes in January.
“Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms,” the administration said in a statement. “However, given the current weakened state of the U.S. economy, we will consider other options if necessary – including use of the TARP program — to prevent a collapse of troubled automakers.
“A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time.”
TARP is the acronym for the Treasury’s “troubled assets relief program” for which Congress approved up to $700 billion earlier this fall. About $15 billion remains available from the first $350 billion installment, and that would be sufficient to keep General Motors Corp. from slipping into bankruptcy.
Until its new statement, the administration has insisted that the TARP funds be kept in reserve for only the financial markets, and the White House instead pursued a $14 billion emergency loan package for automakers to be financed from prior appropriations within the Energy Department.
That effort collapsed Thursday night in the Senate when Republicans withheld their support and the bill was blocked on a 52-35 roll call—eight votes short of the 60 needed to move forward.
The Federal Reserve could yet help, but Chairman Ben Bernanke has warned Congress that he would be extremely reluctant to step into the auto crisis — especially if lawmakers could not agree on action among themselves. That puts the burden back on Treasury Secretary Henry Paulson, and it appears the administration is now moving in that direction rather than risk major bankruptcies in these last weeks in power.
GM estimates it needs $4 billion by the end of this month to stay afloat and another cash installment in January, when Chrysler LLC is also in peril.
“While the federal government may need to step in to prevent an immediate failure, the auto companies, their labor unions, and all other stakeholders must be prepared to make the meaningful concessions necessary to become viable,” the administration said Friday.
Going forward, one question is whether the Treasury or Commerce Department, which has been active in the auto debate, will take the role of “auto czar”—an executive position authorized in the failed bill but an idea Bush could begin to implement even as he cedes power to the incoming Obama administration.
Sen. Carl Levin, a Michigan Democrat and strong industry ally, said he was “encouraged” by the White House’s statement.
“Use of TARP funds is the fastest, most feasible, most immediate and most certain approach to provide the emergency bridge loans needed by the auto companies,” Levin said. “It was always the intent of the TARP program to assist industries whose collapse would have a major impact on the economy, including the financial sector. “
“I am hopeful that the president will act promptly to prevent this collapse and the resulting calamity for our economy.”