The Bush White House is to keep the troubled Detroit-based automakers waiting a while longer to hear if the administration will provide bailout loans after a Democrat sponsored Congressional bill failed to pass Republicans in the Senate last week.
Asked when he might make an anticipated announcement about using part of a US$700bn financial industry bailout fund, President George Bush said on Monday: “We’re not quite ready to announce that yet.”
Asked whether he was leaning toward using financial bailout funds, Bush said: “I signalled that that’s a possibility.”
According to Reuters, Bush said a decision would not take long. White House spokeswoman Dana Perino had earlier told the news agency she had no timetable for a decision.
“This will not be a long process because of the economic fragility of the autos,” Bush was quoted as saying by the Detroit Free Press.
Lawmakers on Sunday told Reuters they expected the administration to act quickly to avoid a US auto industry collapse which could lead to millions of job losses.
Tennessee Republican senator Bob Corker told the news agency The Treasury Department had been talking over the weekend with automakers about their balance sheets.
“I don’t think they yet know what they’re going to do,” Corker was quoted as saying.
Bush had said last week the administration would consider using some of the federal $700bn bailout money already approved for financial institutions. About $15bn of the first tranche of $350bn remained unallocated.
Federal Reserve chairman Ben Bernanke last week told lawmakers the central bank was “extremely reluctant” to lend to car makers.
The Free Press said the lack of certainty over the size of a rescue, and when it might come, had bankruptcy attorneys preparing for the worst over the weekend, and the industry remained on edge as it headed into this new week.
“I certainly hope there will not be” a GM bankruptcy, attorney Harvey Miller of Weil, Gotshal & Manges LP in New York told the Free Press on Sunday. Miller also said he was not permitted to comment when asked if he had been retained by GM to explore a bankruptcy.
Several bankruptcy attorneys in southeast Michigan told the Free Press yesterday they were consulting with anxious suppliers throughout the region over the weekend about how they might proceed if GM or Chrysler were to file for bankruptcy – or even if the automakers, who are running low on cash, didn’t pay their bills on time. Such a failure could force many already fragile suppliers to file for bankruptcy protection themselves, the Motown paper noted.
“There’s definitely an uptick and a sense things could get really crazy. We’re all sort of holding our breath,” Michael Hammer, a bankruptcy attorney for Dickinson Wright, told the paper.
He told the Free Press his firm was handling “a ton” of suppliers who are trying to determine how to proceed, and has begun creating a strategic plan to handle a “run on bankruptcies.”
“The system could get overwhelmed,” Hammer added. “Everybody wants to know what’s going to happen if we face an overall meltdown situation.”
Bankruptcy lawyers told the paper there may not be enough credit available to handle a large number of bankruptcies.
The debtor-in-possession financing commonly used to restructure under the US Chapter 11 bankruptcy law may not be available, especially if a large number of companies file for protection, as some lawyers are beginning to suspect might happen. That would force the companies to close and liquidate their assets instead.
GM chairman and CEO Rick Wagoner has suggested that could happen to GM, if forced into bankruptcy, because consumer confidence would evaporate and no one would buy cars from an automaker gone bust.
Amidst all this gloom, senators told a CBS Sunday morning political show that Bush was unlikely to allow the Big Three to collapse.
Democrat senator Carl Levin from Michigan said The White House had acknowledged it would be “irresponsible” not to help.
“By the way, no other country that produces automobiles is allowing its industry to collapse,” Levin said. “They all have the same problem. They’re all providing loans to those industries. This [problem] is not unique to the United States. Even the Chinese auto industry is asking the Chinese government for loans.”
Ohio Democrat Sherrod Brown said: “I don’t think the White House wants bankruptcy at one of the big three automakers as part their legacy.”