Auto bailout collapses in Senate

Auto bailout collapses in Senate

Negotiations to bring measure up for vote fall short, possibly dooming GM, Chrysler to bankruptcy.

By Chris Isidore, CNNMoney.com senior writer

Hopes for Congressional approval of a bailout of the U.S. auto industry appeared to fall apart late Thursday night as Senate leaders said Democrats and Republicans were unable to reach a deal that could get the bipartisan support needed to bring the measure for the vote.

The Senate voted 52-35 to bring the measure for a vote, but that was short of the 60 votes needed to advance the legislation. The failure followed the collapse of negotiations between Senate Democrats and Republicans seeking a compromise that all sides could accept.

This development could possibly doom General Motors (GM, Fortune 500) to a bankruptcy and closure in the coming weeks, with Chrysler LLC potentially following close behind.

While Ford Motor (F, Fortune 500) has more cash on hand to avoid an immediate crisis, its production could be disrupted by problems in the supplier base, as could the production of overseas automakers with U.S. plants such as Toyota Motor (TM) and Honda Motor (HMC).

The bill would have provided $14 billion in federal loans as a stopgap measure until the new Congress and the incoming Obama administration could reach a longer-term solution.

However, the Big Three could still wind up getting government funding. Bush officials warned wavering GOP senators earlier Thursday that if they didn’t support the legislation, the White House will likely be forced to tap funds from the Wall Street bailout to lend them money, two Republican congressional officials told CNN.

The White House has been strongly opposed to using any of the $700 billion in bank bailout funds to help the auto industry, but the Bush administration has also expressed that the Big Three must get some financial assistance soon.

White House Press Secretary Dana Perino said earlier Thursday that the economy is too weak right now to weather bankruptcies by one or more automakers.

Hopes for compromise quickly faded
Earlier in the evening, it appeared that the two sides were getting close to an agreement on the bailout. But just after 10 p.m., Senate Majority Leader Harry Reid, D-Nev., announced a failure to reach an agreement and that he would call for a procedural vote to test support for the measure.

“We have worked and worked and we can spend all night tonight, tomorrow, Saturday, and Sunday, and we’re not going to get to the finish line,” Reid said on the Senate floor before the vote. “That’s just the way it is. There’s too much difference between the two sides.”

Senate Minority Leader Mitch McConnell, R-Ky., said the sticking point was the United Auto Workers union’s refusal to put employees at U.S. auto manufacturers at “parity pay” with U.S. employees at nonunion plants operated by foreign automakers in the United States. more

Oil settles near $48 on auto vote

Oil settles near $48 on auto vote

Passage of the $14 billion measure to aid carmakers helps boost sentiment about economy, but threatens weaker dollar.

By Kenneth Musante, CNNMoney.com staff writer

Oil prices jumped Thursday after the House passed a $14 billion stop-gap measure designed to keep the U.S. auto industry from immediate collapse.

U.S. crude for January delivery rose $4.46 to settle at $47.98 a barrel in New York. It rose to a high of $49 a barrel earlier in the session.

The House passed a bill that would provide $14 billion in loans to automakers General Motors (GM, Fortune 500) and Chrysler, and keep them out of bankruptcy until at least March. Ford Motor (F, Fortune 500), which is in better shape cash-wise than its counterparts, is not part of the $14 billion plan.

The measure, which still faces a vote in the Senate, could prevent a large blow to the economy of the world’s largest oil consumer.

An auto bailout has been largely priced in to oil, but a collapse of the U.S. auto industry “would result in a very painful [price] correction, not only in crude oil, but also in the equity markets,” said Chris Lafakis, associate economist with Moody’s Economy.com.

The U.S. auto industry employs about 2 million workers, according to the Center for Automotive Research. That total includes GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler workers, as well as dealers and workers at parts manufacturers.

In urging Congress to pass the auto bailout, the White House cited jobless claims, which jumped to a 26-year high last week, according to the Labor Department.

Falling dollar: Oil prices also got a boost Thursday as the value of the U.S. dollar fell versus other major currencies.

The dollar slipped against the 15-nation euro, British pound and Japanese yen.

“We’re seeing concerns that all these bailouts are going to lead to more interest rate cuts and a weaker dollar,” said Phil Flynn, senior market analyst with Alaron Trading in Chicago.

A weaker dollar makes oil (which, like other commodities, is demoninated in dollars) cheaper for foreign investors, which spurs buying.

OPEC cut: Investors are also looking for a large cut in production from the Organization of Petroleum Exporting Countries, an international trade cartel whose members produce about 40% of the world’s oil, when it meets next week in Algeria.

Due to falling worldwide demand, crude prices have plummeted more than $100 a barrel since hitting a record high of $147.27 in mid-July.

The deep cut in prices has raised serious concerns for many OPEC members who rely on oil profits to fuel their domestic economies. more

Argentina tries gov’t car loan plan

Argentina tries gov’t car loan plan

Consumers to get low interest car loans as carmakers agree to produce low-cost models.

Argentina’s auto industry will get a 3.1 billion peso ($900 million) boost with cut-rate loans for first-time new car buyers, the government said Saturday.

Production Minister Deborah Giorgi’s announcement detailed a key part of a broader economic stimulus package based largely on assets of the recently nationalized pension system.

Giorgi told a news conference that six automakers will each offer two models selling for $10,000 or less for people buying a new car for the first time.

The companies, most of which saw sales drop sharply in November, will have to promise to shun layoffs and hold down profit margins on cars sold under the program.

Buyers can choose a pre-savings plan under which delivery times are determined by lottery or they can contract low-interest financing. Payments are supposed to range around $230 a month.

Argentina’s auto industry employs about 150,000 people and exports about $8 billion a year, but the country’s automakers association reported that local auto production dropped 28 percent in November from the same month in 2007, with exports down about 25 percent. more

Accord on U.S. help for automakers

Accord on U.S. help for automakers

GM and Chrysler are close to getting billions in stopgap aid to stay out of bankruptcy. Pelosi changes mind on key sticking point.

By Chris Isidore, CNNMoney.com senior writer

Congressional Democrats and the Bush White House have reached an agreement in principle on providing stopgap support for the U.S. auto industry, according to congressional and industry sources.

The deal would keep the most troubled companies out of bankruptcy court at least through the end of March. While the money is less than the automakers were asking for in testimony before Congress this week, the package is designed to keep them operating so that the new Congress and the Obama administration will have at least a couple of months to draft and pass a longer-term solution.

The break came Friday evening when House Speaker Nancy Pelosi, D-Calif., backed off her opposition to using funds from a fuel efficiency research program for a bailout, two congressional officials told CNN Friday.

A congressional source stressed that the agreement does not represent a final bill. Talks on all side are expected to continue through the weekend, and lawmakers will convene early in the week.

“We hope to continue to make progress toward assistance for the automakers based on important principles — that taxpayer assistance only be considered for companies willing to make the difficult decisions across the scope of their businesses to be viable and competitive in the future; that taxpayer assistance should come from funds already appropriated in the program specifically intended to assist automakers — the auto loan program; and that assistance is accompanied by very strong taxpayer protections,” Pelosi said in a statement released Saturday.

An auto industry source told CNNMoney.com that it was too early to say there is a firm deal, but that the change of heart by Pelosi on the source of funds for a bailout was a significant step towards reaching an agreement.

In another significant sign of the improved chances for the bailout, both Pelosi and Senate Majority Leader Harry Reid, D-Nev., issued statements saying they expected to call the lame duck Congress back into session for a vote on help for the auto industry.

As recently as Thursday, neither Pelosi nor Reid would commit to holding the vote the automakers say they need in the coming two weeks.

But the leaders decided Friday to plan for a vote in the wake of the government’s grim employment report, which showed that the economy lost 533,000 jobs in November, and the better reception the automakers’ CEOs received on Capitol Hill at hearings on Thursday and Friday.

“Today’s announcement of major job losses and findings from congressional hearings from the last two days make it clear that Congress must work on a bipartisan basis to provide short-term and limited assistance to the automobile industry while it undertakes major restructuring,” said Pelosi.
Positive sign

Automakers took the announcement of a vote as a positive sign.

“The U.S. auto industry is a critical part of our economy and we are encouraged by Speaker Pelosi’s statement that Congress is expected to act next week,” Ford Motor (F, Fortune 500) said in a statement late Friday.

Congressional Republicans and President Bush support the idea of tapping a $25 billion research fund Congress has already approved. Two officials familiar with the compromise talks told CNN that the working target is $15 billion to $17 billion in bridge loans.

General Motors (GM, Fortune 500), the nation’s largest automaker, has warned that it will run out of cash to operate by the end of the year without federal assistance. And Chrysler LLC has indicated it also is close to running out of money and will not get through the first quarter of the year without help.

GM and Chrysler have argued that consumers would be reluctant to buy cars from a bankrupt automaker. As a result, they say, bankruptcy filings would force them to go out of business and liquidate their assets.

While the industry requested $34 billion in federal loans this week from Congress to help them weather the current cash crisis sparked by the worst auto sales in 26 years, their top executives indicated in testimony Friday that they could get by with the lesser amount in order to make it through March.

GM Chief Executive Rick Wagoner said the company needs $4 billion by the end of the year to avoid bankruptcy, another $4 billion in January and an additional $2 billion by the end of March. Overall, GM is seeking up to $18 billion to get to 2010, when cost savings from a 2007 labor contract will kick in.

Chrysler CEO Robert Nardelli indicated his company needed $4 billion early next year out of the total of $7 billion it is asking for from Congress.

Ford, the third major U.S. automaker, has far more cash on hand and believes it will not need federal loans in order to survive. But it is asking for access to up to $9 billion in loans as a “backstop” in case business conditions are worse than its executives forecast next year.
Talks on-going

Congressional officials cautioned that talks are still very fluid, and that there are still other options on the table and many details to discuss. more

Citigroup Should Be Held Accountable, Obama Aide Podesta Says

Citigroup Should Be Held Accountable, Obama Aide Podesta Says

By Edwin Chen

Nov. 28 (Bloomberg) — The U.S. government should demand accountability and changes at Citigroup Inc., as well as from automakers, in exchange for any financial assistance, a top transition official for President-elect Barack Obama said.

If Detroit Falls, Foreign Makers Could Be Buffer

If Detroit Falls, Foreign Makers Could Be Buffer

By LOUIS UCHITELLE
Published: November 16, 2008

The failure of one or more of Detroit