In the wake of the failure of a $14 billion bailout for Detroit automakers, the White House is considering alternative sources of funding for the Big Three.
The Senate rejected the rescue plan last night 52 to 35, after it had passed the House on Wednesday. The deal deadlocked over pay. Republicans want the wages of United Auto Workers union employees to be slashed to the level paid to nonunion workers at the domestic plants of foreign car companies. Although both sides were about to reach a deal, lawmakers said, the union wouldn't agree to the Republicans' timetable for when the change would take place.
If it had passed, the bill would have infused General Motors and Chrysler with immediate emergency loans, which the auto giants say they need to survive into 2009. The money was to be taken from the $700 billion financial-industry rescue package. Out of the first $350 billion disbursed by Congress, about $15 billion remains, although Treasury officials say it's needed to back up existing programs.
The Bush administration had firmly rejected the idea of using money from any sources under its own control, like the $700 billion Troubled Asset Relief Program, to help out the auto companies. But after negotiations crumbled, the White House changed its tune, saying in a statement that "it's disappointing that Congress failed to act tonight."
The administration announced today that it will consider dipping into alternative sources like TARP to bail out Detroit. The White House press secretary said that the economy is too weak to withstand the effects of the Big Three's bankruptcy.
The auto companies' failure would affect not only those employed by them and the economies of areas around large car plants but also auto supplier firms, which employ twice as many workers as the carmakers.
Global markets, still digesting the news from the White House, slumped on news of the bill's failure. Japan's Nikkei 25 closed 5.6 percent lower, and major European indexes all fell more than 3 percent. The dollar also fell, and the Dow was down in early trading.
News of the bill's failure came in the midst of more bad economic indicators, boosting fears of what the industry's bankruptcy could mean for the recession. The government reported today that consumer spending fell by 1.8 percent in November—including a 2.8 percent drop in car sales, the worst sales month for automakers in more than 26 years. Jobless claims rose to their highest level in 26 years, at a seasonally adjusted 573,000. And Bank of America said yesterday that it will cut between 30,000 and 35,000 jobs.
- Read about the debate in Congress over a stimulus package.