The US Congress is bracing for a likely showdown with the Bush administration when it meets next Wednesday to push emergency legislation for a $25 billion bailout from the $700 billion `Troubled Assets Relief Program' to prevent the big three Detroit automakers from collapsing which could potentially trigger a 2.5 million job loss overall and take the US jobless rate to a high of 9.5 per cent, up from October's 14-year high of 6.5 per cent.
The big three cannot wait until January next year when President elect Barrack Obama who wants the automakers to be bailed out by the US government and have met US house of representatives speaker Nancy Pelosi and senate majority leader Harry Reid. These senators are working on a detailed aid package of $50 billion for the auto industry. Out of this, $25 billion would be used as emergency capital and the other $25 billion will go to the retiree healthcare trust fund. This will free up cash for other uses.ancy Pelosi has urged lawmakers to approve the bill and has sought immediate action to bail out the three auto giants, saying that failure of one or more of the three giants would lead to loss of millions of jobs, which will have a devastating impact on the economy.
Barney Frank, chairman of the House Financial Services Committee and congressional Democrat said that if the bill is passed then the loan of $25 billion to Detroit's automakers should come from the $700 billion 'Troubled Assets Relief Program.'
The chief executives of GM, Ford and Chrysler will have the opportunity to present their case before the US congress when they testify at the hearing before Barney Frank's committee.
Media reports quoting an unnamed Democratic congressman said Nancy Pelosi has virtually thrown a challenge to Bush to veto the bill and take blame for the big three collapsing thereby putting millions of Americans out of work at a time when the country is facing its worst financial crisis and economic slowdown.
During his meeting with President Bush on Monday, President-elect Barack Obama also had urged the Bush administration to bail out the automakers.
The congressional Republicans have opposed the bail-out of the auto industry with one Senate Republican leader saying ''automakers today, airlines tomorrow, it has to stop somewhere, it is better that the big three, R.I.P.''
''The financial situation facing the big three is not a national problem, but their problem, I do not support the use of the US taxpayer dollars to reward the mismanagement of Detroit-based auto manufacturers in such a way that allows them to continue and compound their ongoing mistakes,'' Richard Shelby, Republican representative on the Senate Banking Committee, said in a statement.
Many Republicans and analysts believe that even if a bailout is provided the big three will still perish as its business is not viable due to the gas guzzlers they produce when the market is shifting to more fuel efficient cars.
Treasury Secretary Henry Paulson said on Wednesday that the 'Troubled Asset Relief Program' is not the right source of funding for the troubled automakers, although he acknowledged that the automakers were important part of the US economy.
The Bush administration has never been keen on widening the scope of the $700 billion bailout earmarked for the crisis ridden financial industry to automakers, and Paulson suggested that the congress should focus on speeding up the $25 billion loan which has already been approved by the congress.
Automakers, instead want the congress to approve the $25 billion emergency loan so that they have fast access to the money rather than wait for other $25 billion loan approved for retooling its factories for producing fuel efficient cars as the loan comes in tranches and spread over a decade.
Pelosi said the House Financial Services Committee chairman Barney Frank, would be writing the legislation and the aid if passed would put restrictions on executive compensation, a ban on golden parachutes, strict independent oversight, and other protections to see that taxpayers money is put to proper use and auto makers take on the full responsibility of paying back the money.
General Motors, whose plight is worse among the three, having lost more than $20 billion this year and eliminated more than 46,000 jobs since 2004, had $21 billion in the kitty as of June this year which has reduced to $16.2 by September and requires approx $11 billion to pay its monthly bills.
With no source of outside funding, as lending institutions have refused to give it a penny, GM has also shelved its plan to merge with the other troubled auto giant, Chrysler, so as to focus on getting government funding, else it will be forced to file chapter 11 by early next year.
Analyst believe that if GM falls, it will have a domino effect on the other two, Ford and Chrysler who also will fail bringing a disastrous end to the Detroit car industry.
GM, has stepped up the ante by asking all its employees and dealers to call on their respective representatives and senators to come forward and support the bill for passing the emergency loan which otherwise would risk 3 million jobs in the auto industry.
If the US congress does approve the bailout, then the future of Rick Wagoner's is in serious doubt as chief executive of General Motors because most of the government bailouts have come with replacement of the top executive, like the insurer, AIG and home-lenders Fannie Mae and Freddie Mac.