Emergency loans for Detroit's Big Three could set up showdown between Congress, White House

WASHINGTON - Congressional Democrats are marshaling support for a rescue package to pump $25 billion in emergency loans to U.S. automakers in exchange for a government ownership stake in Detroit's car companies.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, and Sen. Carl Levin, D-Mich., are developing legislation that would let the auto industry tap into the $700 billion Wall Street rescue money, approved by Congress last month, to fund their business operations.

General Motors Corp., Ford Motor Co. and Chrysler LLC are lobbying Congress to approve the aid, citing an economic downturn that has choked off auto sales, frozen credit and made them vulnerable. GM, the nation's largest automaker, posted a $2.5 billion quarterly loss Friday and has predicted it could run out of cash by the end of the year without government help.

"The reason why the autos are in this challenge is because of the meltdown in the financial market," said Michigan Gov. Jennifer Granholm. "They were on a restructuring path — yes, they were challenged — but this has utterly kicked them in the gut and is strangling them because they can't borrow money."

The legislation could set up a congressional showdown with the White House during President George W. Bush's final days in office. House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., are hoping for quick passage of the auto bailout during a postelection session that begins Monday.

Bush is open to helping the industry, the White House says, but the administration has expressed reservations about using the bailout money beyond the financial sector.

Treasury Secretary Henry Paulson said Wednesday that the auto sector was "critical" but that the financial industry rescue was not designed for car companies. "Any solution has got to be leading to long-term viability" for auto companies, Paulson said.

Republicans in the Senate could play a key role in whether the rescue plan advances. Some Senate Republicans who opposed the Wall Street bailout before the election have expressed skepticism that the aid would lead to changes for the companies.

Senate Republican leader Mitch McConnell of Kentucky, which is home to two Ford Motor Co. plants, was noncommittal about additional aid. In a statement, his spokesman said Congress should move to speed the release of a $25 billion loan program passed earlier to help the carmakers develop fuel-efficient vehicles.

Frank's legislation would carve out a portion of the $700 billion financial rescue program for the Big Three automakers, letting the government take an equity stake in them in exchange for the loans, said Frank's spokesman, Steven Adamske.

The Treasury could take warrants to share in a portion of future profits and would have to be paid back before any other shareholder. The car companies would face tougher restrictions on awarding pay packages to executives and dividends to their shareholders than the financial companies that get a piece of the original bailout.

Auto executives, labor leaders and other industry proponents are seeking an immediate $25 billion loan to keep the companies operating. Union officials are also hoping for a separate $25 billion to help cover future health care obligations for retirees and their dependents.

Beyond the car companies, lawmakers may hear from a broad coalition of manufacturers seeking aid. Auto suppliers, which carry a wide manufacturing presence in Michigan, Indiana, Missouri, Ohio, Tennessee and Illinois, are seeking a piece of the rescue.

"There's so much connection between the buyers and the manufacturers that we feel that the program has to be inclusive," said Ann Wilson of the Motor and Equipment Manufacturers Association.

The National Automobile Dealers Association, which represents nearly 20,000 new car and truck dealers, supports an automobile stabilization package, said spokesman Bailey Wood.

Executives with the Detroit automakers and the head of the United Auto Workers are expected to make their case at a hearing next Wednesday before Frank's committee. A House vote on Frank's measure could come as early as next Thursday.

Democratic leaders also are considering pairing the measure with a broader economic aid bill, including money for unemployed workers whose jobless benefits have run out, aides said.

___

Associated Press writers Julie Hirschfeld Davis and Jennifer Loven in Washington and Ben Leubsdorf in Troy, Mich., contributed to this report.