Updated from 11:31 a.m. EST
The White House says it is willing to provide troubled automakers with bailout money from a package intended to help banks and Wall Street, creating an unusual alliance between the United Auto Workers and a Republican president battling members of his own party.
The shift came after the Senate failed Thursday night to pass legislation providing $14 billion for Chrysler and
, which needs immediate help to avoid a liquidity crisis. GM said Friday it will cut first quarter production by 30% or 250,000 vehicles "due to the ongoing and severe drop in industry sales."
Optimism mounted Friday that money will indeed be forthcoming from the Troubled Asset Relief Program, the $700 billion package approved by Congress in October. "Given the current weakened state of the U.S. economy, we will consider other options if necessary -- including use of the TARP program -- to prevent a collapse of troubled automakers," the White House said Friday, in a prepared statement.
The White House "wanted to get this thing worked out," UAW President Ron Gettelfinger said Friday at a press conference. "They did not want to pass it off to the next administration. The Republican minority decided they wanted to go against their own president."
Timing is critical, Gettelfinger said, because suppliers are "shortening their terms," and seeking cash on delivery at General Motors.
"We need to get the commitment" on bailout funding, he said. "We need to satisfy the suppliers that there is to be no tomorrow. The run on the banks is a bigger issue than anyone here realizes."
In a report issued Friday, S&P analyst Efraim Levy reiterated a sell on GM shares, despite the likelihood of TARP funding. Ford says it has no immediate need for a government loan.
"The White House seems poised to fill the funding void to prevent an automotive bankruptcy (and) we think the TARP program is the most likely source of funds," Levy wrote. "However, even with a bailout, we see GM challenged by weakening global sales, and think it would need to return for more funding in '09."
In a statement issued Friday, the Treasury Department echoed an earlier White House statement, saying: "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."
Legislation approved by the House would have provided GM and Chrysler with $14 billion from funds already appropriated to provide loans for automakers to retool in order to build more fuel efficient vehicles. Its prospects collapsed Thursday night after the Republicans and Democrats could not agree on the timing of wage cuts for union workers.
The Senate approved the legislation 52-35, eight votes short of the 60 needed to override a Republican filibuster. The House had approved similar legislation Wednesday by a 237-170 vote, largely along party lines.
Sen. Bob Corker, R.-Tenn, had sought to work out a compromise that bound the UAW to pay cuts and other concessions. Gettelfinger said that despite misgivings, the union reached a deal with Corcoran. But he said the Republican caucus "repudiated positions taken by President Bush and Senator Corker" because it wanted to place even more stringent demands on the union.
Gettelfinger reiterated his fear of an automaker bankruptcy, noting "They would not just go bankrupt -- they would go into liquidation. That's one thing Sen. Corker truly understands, that bankruptcy is not an option here."
Questioned about Republican motivation, Gettelfinger said that some party leaders, particularly Alabama Sen. Richard Shelby, represent states that have provided hundreds of millions of dollars in incentive for domestic operations by foreign automakers. He said the Republican minority wants "to pierce the heart of organized labor while representing the foreign brands."
San Diego State University finance professor Dan Seiver said Congress is playing chicken with the auto industry's future: "The way you get the most concessions is to threaten to go off the cliff, (but) how close do we want to get before we decide to rescue the auto companies?," he asked.
"The idea is that a group of Republicans wants to push the Big Three into bankruptcy, (and) there are arguments in favor of letting them go bankrupt in terms of restructuring," Seiver said. "But President-elect Obama has decided that is not the best alternative, and he is putting pressure on Treasury to provide help."