Carmakers may be next up for bailout

White House confirms talks with auto companies about possible help from $700 billion program.

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By Chris Isidore, senior writer

NEW YORK ( -- Bush administration officials have had talks with the nation's automakers about providing possible federal help for the cash-starved companies, a White House spokeswoman said Monday.

Spokeswoman Dana Perino, responding to questions at her daily press briefing, said a decision had not yet been made about whether federal help will be offered to General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler LLC.

A number of experts have expressed concern that the automakers, which have suffered a sharp plunge in sales, could run through their cash reserves by next year.

The automakers could get help through the $700 billion Wall Street bailout passed by Congress earlier this month. The bailout was designed to prompt banks and securities firms to loan money to businesses and consumers, but automakers might qualify for help through their finance arms, Perino said.

"It's possible that some of those financing arms could be a part of the rescue package, the TARP, as they call it, at the Treasury Department," Perino said. "That's one of the reasons Treasury has been in contact with them."

Earlier this year, Congress approved a separate $25 billion loan program to help the automakers finance a switch in production from larger vehicles, such as pickups and full-size SUVs, to more fuel efficient vehicles.

The government has not started dispersing money under that program. The Department of Energy is working on regulations to govern the loans.

"I think that it's clear that the automakers are dealing with a very serious situation," Perino said. "They have been for some time."

GM spokesman Greg Martin acknowledged Monday that automakers are interested in getting help from the federal government.

"We have been in contact with a variety of federal officials for some time during this extraordinary and difficult economic period," said Martin, who is the automaker's Washington-based spokesman.

Martin declined to elaborate on the discussions. "We have said publicly that we believe the federal government should consider all of the tools available to it - some recently enacted - to support industries that are in distress and that are essential to the U.S. economy."

A Chrysler spokesperson said the company "worked hard" after the bailout was proposed last month "to be sure it was broad enough to offer the tools to address the automotive credit liquidity problem."

Ford declined to comment. Industry officials suggested that Ford was the least likely to be pushing for bailout funds because it had the strongest cash position of the three U.S. automakers.

Last week, Michigan's 17-member congressional delegation signed a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke asking that the federal government help the U.S. automakers. The delegation is made up of nine Republican members of the House and seven Democrats, along with the two Democratic senators.

"There is no single segment of America's economy that is more critical to the financial well-being of millions of Americans than the automotive industry," the letter stated. "One in ten American jobs is related to auto manufacturing.

"In this current economic environment it is imperative that the government ensures that liquidity is restored so that the U.S. auto industry is able to function until normalcy is restored to credit markets," the letter continued.

What the candidates say

Officials with the presidential campaigns of Democratic candidate Barack Obama and Republican John McCain have said they want the original $25 billion loan money made available to automakers more quickly. The loan money was originally authorized last year and finally enacted this year as part of an energy bill.

"It should not take 18 months to issue loans that were authorized in 2007," said Douglas Holtz-Eakin, McCain's senior economic policy adviser.

The Wall Street Journal reported Monday evening that the Department of Energy may release to GM $5 billion from the $25 billion loan program.

Both presidential campaigns said they are open to using the Wall Street bailout program to help automakers, but they didn't make firm commitments.

Jason Furman, Obama's top economic policy adviser, said his candidate wants Treasury and the Federal Reserve to explore the subject.

"At the end of the day, Senator Obama has pledged that all options will be on the table to help our nation's auto industry succeed," Furman said.

Holtz-Eakin said that McCain supports using the Wall Street bailout to help any industry that qualifies.

"It seems pretty clear that GMAC does, although Treasury will have to decide for others," he said. General Motors owns 49% of GMAC, a finance company that has an extensive home loan portfolio in addition to auto loans.

Tough time for Detroit

All of the automakers have announced plant closings and payroll reductions in recent years to stem losses from their core North American auto operations. Their combined U.S. sales in the first nine months of this year are down nearly 20% from year-ago levels.

Just last week, privately-held Chrysler LLC announced it would eliminate one in four salaried jobs at the company. It also said it would cut a shift at an Ohio plant and accelerate the planned closure of a Delaware assembly line.

Also last week, GM said that it is on track to meet its goal of a 20% reduction in salaried staff costs, and added that further cuts could be needed because of the weak sales environment.

GM and Chrysler are reported to be in talks about a possible merger that could eliminate tens of thousands of additional jobs in an effort to save billions of dollars. But finding financing for such a deal in the current environment has proved difficult.

Investors have also been scared away from the sector. Last week financier Kirk Kerkorian, the largest individual investor at Ford outside of the Ford family, announced that he had sold 7.3 million shares of Ford and was looking to sell his remaining 133 million shares. The sale means he'll take a big loss on the Ford stake he purchased earlier this year. To top of page

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