White House considering 'orderly' bankruptcy to deal with ailing automakers

Source: Agencies  |   2008-12-19  |     ONLINE EDITION

THE Bush administration is looking at "orderly" bankruptcy as a possible way to deal with the desperately ailing US auto industry, the White House said yesterday as carmakers readied more plant closings and a half million new jobless claims underscored the deteriorating national economy.

With General Motors, Chrysler and the rest of Detroit anxiously awaiting a White House decision on billions of dollars in emergency federal loans, press secretary Dana Perino said it wasn't simply a choice between government rescue and the disastrous collapse of a major industry.

"There's an orderly way to do bankruptcies that provides for more of a soft landing," she said. "I think that's what we would be talking about."

President George W. Bush, asked about an auto bailout, said he hadn't decided what he would do but didn't want to leave a mess for President-elect Barack Obama, who takes office a month from Saturday. A White House decision on helping the troubled automakers could come as early as Friday.

Bush, like Perino, spoke of the idea of bankruptcies orchestrated by the federal government as a possible way to go -- without committing to it.

"Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring," he said during a speech and question-and-answer session at the American Enterprise Institute, a conservative Washington think tank. "These aren't normal circumstances. That's the problem."

Perino emphasized there were still several possible approaches to assisting the automakers, including short-term loans from the Treasury Department's US$700 billion Wall Street bailout program.

The Big Three automakers said anew that bankruptcy wasn't the answer, as did an official of the United Auto Workers who called the idea unworkable and even dangerous. GM said a report that it and Chrysler had restarted talks to combine was untrue.

House Speaker Nancy Pelosi said on Capitol Hill that grim new unemployment data heightened the urgency for the administration "to prevent the imminent insolvency of the domestic auto industry."

The California Democrat said Bush has the legal authority to act now, and should attach the accountability standards that were included in a US$14 billion House-passed and Bush-supported carmaker bailout that died in the Senate last week. That plan would have given the government, through a Bush-appointed "car czar," veto power over major business decisions at any auto company that received federal loans.

Pelosi spoke after the government announced that initial claims for unemployment benefits totaled a seasonally adjusted 554,000 last week.

The comments in Washington came a day after Chrysler LLC announced it was closing all its North American manufacturing plants for at least a month as it, General Motors Corp. and Ford Motor Co. await word on government action. General Motors also has been closing plants, and it and Chrysler have said they might not have enough money to pay their bills in a matter of weeks.

Separately, there were worries that GMAC LLC, which provides financing for GM vehicle and dealer loans along with home mortgages, could be forced to file for bankruptcy itself.

GMAC was having trouble finding adequate support from its bondholders for a debt transaction that would allow it to become a bank holding company and gain eligibility for the US$700 billion rescue package.

Prices of GM and Ford stocks fell sharply Thursday after the remarks out of the White House. Ford, unlike General Motors and Chrysler, is not seeking billions in federal bailout loans, but a collapse of the other two could hurt Ford as well.

Alan Reuther, the United Auto Workers' legislative director, said the union urged the administration during a meeting this week to follow the provisions included in the House-passed auto aid bill.