Page last updated at 21:49 GMT, Wednesday, 19 November 2008

US car bail-out compromise sought

From left, Ford CEO Alan Mulally, Chrysler CEO Robert Nardelli and GM CEO Rick Wagoner during a Senate hearing in Washington, 18 November 2008
Car executives said the failure of their industry could be catastrophic

US politicians are looking to find a compromise plan to aid the country's crisis-ridden car industry.

Chief executives from Ford, GM and Chrysler have asked for an urgent $25bn (16.6bn) bail-out package as a "bridge" to help them survive.

Republican Senator Mitch McConnell said a compromise was "the only proposal" that had any chance of becoming law.

Republicans and the White House are opposed to aid for the car industry coming out of the $700bn bank bail-out.

Bankruptcy urged

Mr McConnell said: "There is a way forward that will help protect the jobs in the auto industry, while also protecting taxpayers."

Democratic Senator Carl Levin said an "effort" was being made to close the gap between supporters and opponents of a rescue plan and provide a bridging loan to Detroit.

"It would be unthinkable for Congress not to be able to reach a conclusion when the leadership of the Congress, the president and president-elect all say they support bridge loans," he said.

This is all about a lot more than just Detroit - it's about saving the US economy from a catastrophic collapse
Rick Wagoner
General Motors chief executive

The House financial services committee chairman, Democrat Barney Frank, asked how the government could justify a bail-out for banks and insurers, but not the car industry.

"There seems to me to be an inherent cultural bias. Aid to blue-collar employees is being judged by a standard different than white-collar employees," he said.

However, many politicians question whether public money should be used to help the carmakers.

Republican Senator Richard Shelby said the car firms should file for bankruptcy so they could carry out much-needed reforms.

"I don't think they have immediate plans to change their model, which is a model of failure. I believe their best option would be some type of Chapter 11 bankruptcy," he said.

He also called for senior management changes, saying "these leaders have been failures and they need to go".

'Catastrophic collapse'

The car industry has said that without financial help, it is teetering on the brink of disaster.

Part of the US Bankruptcy Code giving troubled firms time to reorganise themselves
Under Chapter 11 protection, a bankrupt firm can carry on trading under existing management
It prevents creditors from forcing a firm into liquidation in order to sell off its assets

General Motors, Ford and Chrysler say they are burning through billions in cash monthly and have little or no ability to raise capital in the private markets due to their poor financial health and the global credit crunch.

GM has warned it could run out of cash in a matter of weeks and cannot wait until President-elect Barack Obama - who has promised to help the industry - is sworn in in January.

The carmakers' top executives and auto workers' union president Ron Gettelfinger have spent two days before Senate and House committees making a plea for help.

GM's chief executive, Rick Wagoner, warned that if the US car industry failed, it could lead to a loss of three million jobs within the first year and ripple throughout communities around the country.

"This is all about a lot more than just Detroit. It's about saving the US economy from a catastrophic collapse," he said.

Critics have argued that many of the industry's problems have been self-made, citing their past reliance upon gas-guzzling trucks and SUVs and their opposition to tougher fuel-efficiency regulations.

Chrysler's chief executive, Bob Nardelli, rejected suggestions that the carmakers should seek Chapter 11 bankruptcy protection.

"We just cannot be confident that we will be able to successfully emerge from bankruptcy," he said.

International problems

On Tuesday, Treasury Secretary Henry Paulson also resisted diverting funds to the US car industry.

GM cars waiting for delivery
The US car industry is in need of resuscitation

Democrats have so far rejected the option favoured by the White House and Republicans, which is to let the industry use a $25bn loan programme designed to help the companies develop more fuel-efficient vehicles.

The car industry's problems are not limited to the US.

The Canadian government said on Wednesday that it would "provide further support" for its ailing car sector.

General Motors, Chrysler and Ford employ 40,000 Canadians at their factories in Ontario, and are responsible for an estimated 300,000 direct and indirect jobs in the country.

Toyota has said it will shut down all of its North American factories for two days next month.

European car companies have asked for 40bn euros (33.5bn; $50.6bn) of soft loans for the industry.

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