White House May Come to Automakers' Rescue
By Michelle Krebs December 12, 2008By Michelle Krebs
The U.S. Treasury said it is willing to provide financing to Detroit automakers after the Senate Thursday night failed to approve $14 billion in loans to General Motors and Chrysler.
"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.
White House spokeswoman Dana Perino said early Friday in a statement that the Bush administration is considering using some of the $700 billion in the Troubled Asset Relief Program (TARP) to keep keep GM and Chrysler, who may run out of cash before President-Elect Barack Obama takes office in January, afloat.
It's not clear how much GM and Chrysler will receive; Ford says it doesn't need funds but wants an available line of credit later. U.S. Treasury Secretary Henry Paulson, who has insisted the TARP funds are for banks not auto companies, already has allocated all but about $15 billion of the first half of the TARP funds. Similarly, the White House has been reluctant but is reversing its decision.
Meantime, reaction to the U.S. Senate's refusal to make the loans to Detroit automakers came swiftly and dramatically after Thursday's late night vote. Overseas stock markets plummeted. Shares of General Motors and Ford tumbled to the $2.50-$2.90 per share ballpark. The U.S. dollar hit a 13-year low, and, before Wall Street's opening bell Friday, stock futures were pointed lower. However, the predicted sell-off didn't occur Friday morning, likely because the White House was expected to come to the rescue.
Without immediate government help, GM and Chrysler likely are both headed toward bankruptcy; GM reportedly has assembled a team of bankruptcy advisors just in case.
Automakers still could announce massive plant closures and layoffs to conserve cash. The domino effect to suppliers would then ensue. Some experts predict U.S. auto production, including that by foreign automakers, could cease because of complex interdependency of suppliers and vehicle producers.
LEAVE A COMMENT