By Mike McCarthy and Anne K Walters Dec 12, 2008, 16:16 GMT
Washington - The White House was considering on Friday whether to divert funds from the 700-billion-dollar bail-out package for Wall Street to the automotive industry after the Senate defeated a similar package for US carmakers.
'It is disappointing that while appropriate and effective legislation to assist and restructure troubled automakers received majority support in both houses, Congress nevertheless failed to pass final legislation,' White House spokeswoman Dana Perino said in a statement.
A last-ditch effort to pass a 14-billion-dollar emergency loan to resuscitate the ailing car industry fell apart late Thursday after negotiations collapsed in the Senate, causing a wave of financial gloom to ripple through world markets on Friday.
The White House could take some of the money from the financial industry bail-out package - known as TARP - approved by Congress in October to loan Detroit's automakers to prevent the potential loss of millions of jobs, Perino said.
'Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms. However, given the current weakened state of the US economy, we will consider other options if necessary - including use of the TARP programme - to prevent a collapse of troubled automakers,' Perino said. '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.'
The House of Representatives passed the automotive loan on Wednesday, but the bill did not survive the Senate, where Republicans refused to provide the 60 votes needed late Thursday in the 100-seat chamber to end debate and move to a final vote. The final tally was 52 in favour and 35 against.
After hours of bargaining, Republicans and Democrats failed to agree on a compromise deal. The focus of contention was the powerful United Auto Workers (UAW) union's refusal to agree to Republican demands for wage cuts and reduction in labour costs to the level of Japanese competitors operating in the US.
The White House had pushed for the rescue plan from funds already appropriated for carmakers to develop greener vehicles and had stressed the financial industry bail-out was not to be used for other industries. The legislation included strict oversight rules that mandated the companies provide a viable business plan, and a clause that would have required them to return the money if a government appointed 'car czar' determined they were not meeting their obligations.
General Motors Corp and Chrysler LLC have warned that they could go bankrupt within weeks without government help, and Ford Motor Co said it would most likely have to seek bankruptcy if one of the other two go down. The automakers argued they needed the money to weather the recession and a 25-year low in car sales in the last two months.
But many lawmakers blame the industry's struggles on a failure to streamline production and cut costs over the past decade as foreign competitors gained ground in the US market.
'None of us want to see them go down but very few of us had anything to do with the dilemma that they've created for themselves,' said Senator Mitch McConnell, the leader of minority Republicans.
President-elect Barack Obama has reluctantly supported the automotive bail-out and expressed disappointment that it did not clear the Senate.
'My hope is that the administration and the Congress will still find a way to give the industry the temporary assistance it needs while demanding the long-term restructuring that is absolutely required,' Obama said in a statement Friday.
There are fears that a failure of the auto industry will not only cost jobs in Detroit, but would also spill over to other parts of the economy, including companies that make parts and work for the large carmakers.
Republicans were insistent wages and total labour costs reach parity by next year. While the UAW has agreed to reopen talks on labour contracts, Democrats would not accept the tough timetable.
'It's over with. I dread looking at Wall Street. ... It's not going to be a pleasant sight,' Senate Majority Leader Harry Reid, a Democrat who strongly supported the bill, said, adding that there would be 'no more work' on the bailout until the 'reconvening of the new Congress next year.'
By midday Friday, the Dow Jones Industrial Average had fallen by 117 points, or 1.4 per cent.
Asian stocks tumbled in trading on Friday. Honda Motor Co and Nissan Motor Co dropped more than 11 per cent over worries that the failure of GM and Chrysler would impact suppliers who also serve the Asian car industry. Denso Corp, the world's largest maker of car parts, plunged 10 per cent. Markets in Europe also fell.
GM said it was 'deeply disappointed' that an agreement could not be reached in the Senate and that it would 'assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis.'
The Big Three's top executives have spent hours in recent weeks testifying before Congress to make their case for a rescue plan, but some lawmakers were skeptical about providing billions of dollars in taxpayers funds.
Reid said it was now up to President George W Bush to provide assistance to the carmakers from the already approved 700-billion- dollar bail-out fund for the financial sector.
Federal Reserve chief Ben Bernanke expressed his reluctance earlier this week to use the central bank's emergency loan programme for the carmakers. The Treasury Department is overseeing the distribution of the finance sector bailout.
Bush's administration backed the deal passed by the House, but the outgoing president had limited clout with his fellow-Republican legislators.
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