Under mounting pressure to act, the Bush administration said Friday it was ready to step in and prevent the U.S. auto industry from collapsing after the Senate refused to pass a rescue bill endorsed by the White House and congressional Democrats. The most obvious source of help was the Wall Street bailout fund.
"The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry," White House press secretary Dana Perino said.
Treasury spokeswoman Brookly McLaughlin said, "Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry."
The Wall Street bailout fund was one of the few remaining options for General Motors Corp. and Chrysler LLC, which have said they could run out of cash within weeks. President George W. Bush had originally refused to use the bailout fund to help the automakers, insisting that help come from Congress. But the White House said it must reconsider after the Senate failed to agree on a $14 billion rescue plan.
"Congress spoke last night. They don't have the votes to do anything," Perino told reporters on Air Force One as Bush traveled to a commencement speech in Texas. "They didn't get it over the goal line and so we have to consider what other options we would take." She declined to say when a decision would be made.
President-elect Barack Obama said he was disappointed that the Senate failed to act. "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," he said in a statement.
About $15 billion from the first half of the $700 billion financial bailout remains uncommitted. Treasury in the past two months has pumped out about $335 billion to banks and insurance companies. To begin tapping the second half of the bailout, the administration would first have to notify Congress, which could block it or put new conditions on how the money is used.
In Detroit, United Auto Workers President Ron Gettelfinger welcomed the Treasury's statement Friday.
"I think it's great news — the response that we've been getting out of both the White House and the Treasury," he said. "I'm not sure what this means, how much they're talking about, any terms or conditions that are associated with it. ... But I do know this, we cannot afford for there to be a run on the banks, if you will, at those companies."
General Motors said in a statement that it was "encouraged by the White House's willingness to consider other options, including the TARP program, for immediate aid to the domestic auto industry." The company said it would work closely with the administration on solutions "that could prevent further damage to our nation's economy."
The Senate's rejection of the $14 billion rescue plan and further evidence of a deepening global recession made world stock markets plunge. U.S. stock index futures pointed to a big sell-off later on Wall Street. The Dow Jones industrial average fell more than 200 points as the market opened but pared its losses somewhat after the White House and Treasury statements, and other indicators followed suit.
Gettelfinger blamed the defeat of the auto industry bailout bill in Congress on southern Senators who he said are anti-union and anti-Detroit.
The Senate rejected the bailout 52-35 on a procedural vote Thursday night — well short of the 60 required — after the talks fell apart.
"I dread looking at Wall Street," said Senate Majority Leader Harry Reid in anticipation of Friday's stock market reaction. "It's not going to be a pleasant sight."
The Bush administration has repeatedly said the Wall Street bailout fund should not be used for emergency aid to the automakers because it was designed to restore stability to the financial sector. But with the Senate's action, Detroit's supporters looked to the White House for help.
"Plan B is the president," said Sen. Carl Levin, D-Mich. House Speaker Nancy Pelosi said action by Bush was the "only viable option."
"For God sakes, I hope the president acts," exclaimed Mayor Virg Bernero of Lansing, Mich.
Detroit's carmakers employ nearly a quarter-million workers, and more than 730,000 others produce materials and parts for cars. If one of the automakers declared bankruptcy, some estimate as many as 3 million U.S. jobs could be lost next year.
Many congressional Republicans and some economists said the companies would be best to pursue a prearranged bankruptcy that would allow them to restructure quickly. But most Democrats and the carmakers rejected that, arguing it would quickly lead to liquidation because consumers would never buy cars from a bankrupt auto company.
Perino, speaking on Bush's plane, said that, "Under normal economic conditions we would prefer that markets determine the ultimate state of private firms. However, given the current weakened state of the U.S. economy, we will consider other options if necessary, including use of the TARP (bailout) program to prevent a collapse of troubled automakers."
"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," she said. "While the federal government may need to step in to prevent an immediate failure, the auto companies, their labor unions and all other stakeholders must be prepared to make the meaningful concessions necessary to become viable."
Bush, before departing the White House, consulted with chief of staff Joshua Bolten and senior counselor Ed Gillespie, among others.
"Obviously, we've talked about the urgency of the situation," Perino said.