White House Considers Use of Funds to Aid Automakers

WASHINGTON — In a shift, the White House said Friday morning that it would consider using money from the $700 billion financial bailout to rescue troubled automakers, one day after the Senate abandoned its efforts to pass legislation offering a government rescue to the companies.

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Dana Perino, a spokeswoman for President George W. Bush, issued a statement criticizing Congress’s failure to pass an automotive rescue plan that had been negotiated betweem Democratic lawmakers and the White House. Two of the Big Three, General Motors and Chrysler, have said they are so short of cash that they may not be able to survive through this month without aid, and the third, Ford Motor, is also struggling with weak sales.

“It is disappointing that while appropriate and effective legislation to assist and restructure troubled automakers received majority support in both houses, Congress nevertheless failed to pass final legislation,” Ms. Perino said in the statement. “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.” She said that allowing the economic harm caused by such a collapse would be “irresponsible.”

After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal, but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.

The failure in Congress to provide a financial lifeline for G.M. and Chrysler was a bruising defeat for President Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy.

“It’s over with,” the Senate majority leader, Harry Reid of Nevada, said on the Senate floor, after it was clear that a deal could not be reached. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

Mr. Reid added: “This is going to be a very, very bad Christmas for a lot of people as a result of what takes place here tonight.”

The Republican leader, Senator Mitch McConnell of Kentucky, said: “We have had before us this whole question of the viability of the American automobile manufacturers. None of us want to see them go down, but very few of us had anything to do with the dilemma that they have created for themselves.”

[except, of course, the onerous CAFE requirements and the government involvement in the financial meltdown]

Mr. McConnell added: “The administration negotiated in good faith with the Democratic majority a proposal that was simply unacceptable to the vast majority of our side because we thought it frankly wouldn’t work.”

Moments later, the Senate fell short of the 60 votes need to bring up the auto rescue plan for consideration. The Senate voted 52 to 35 with 10 Republicans joining 40 Democrats and 2 independents in favor.

The White House issued said it would consider alternatives but offered no assurances.

“It’s disappointing that Congress failed to act tonight,” Tony Fratto, the deputy press secretary, said. “We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable. We will evaluate our options in light of the breakdown in Congress.”

Markets reacted quickly in Asia. In Japan, the Nikkei 225 index closed down 5.6 percent after the proposal failed and other markets registered substantial retreats as well.

Immediately after the vote, the Bush administration was already coming under pressure to act on its own to prop up G.M. and Chrysler, an idea that administration officials have resisted for weeks.

House Speaker Nancy Pelosi and other lawmakers called on the administration to use the Treasury’s bigger financial system stabilization fund to help the automakers, but there may not be enough money left to do so.

About $15 billion remains of the initial $350 billion disbursed by Congress and Treasury officials have said that money is needed as a backstop for existing programs.

Democrats instantly sought to blame Republicans for the failure to aid Detroit, while a number of Republicans blamed the union. But on all sides the usual zest for political jousting seemed absent given the grim economic outlook.

“Senate Republicans’ refusal to support the bipartisan legislation passed by the House and negotiated in good faith with the White House, the Senate and the automakers is irresponsible, especially at a time of economic hardship,” Ms. Pelosi said in a statement.

She added: “The consequences of the Senate Republicans’ failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options.”

Senator George V. Voinovich, Republican of Ohio, and a supporter of the auto rescue efforts, said: “I think it might be time for the president to step in.” Senator Christopher S. Bond, Republican of Missouri, also urged the White House to act.

So far, the Federal Reserve also has shown no willingness to step in to aid the auto industry.

Democrats have argued that the Fed has the authority to do so and some said the central bank may now have no choice but to prevent the automakers from entering bankruptcy proceedings that could have ruinous ripple effects.

G.M. and Chrysler issued statements expressing disappointment.

G.M. said: “We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis.”

Chrysler said it would: “continue to pursue a workable solution to help ensure the future viability of the company.”

Earlier in the day, G.M. said that it had legal advisers, including Harvey R. Miller of the firm Weil Gotshal & Manges, to consider a possible bankruptcy, which the company until now has said would be cataclysmic not just for G.M. but for Chrysler and the Ford Motor Company as well.

Ford, which is better financial shape than its competitors, had said it would not seek the emergency short-term loans for the government, but urged Congress to help its competitors because the fates of the Big Three are so closely linked.

The rescue plan approved by the House on Wednesday, by a vote of 237 to 170, would have extended $14 billion in loans to the G.M. and Chrysler and required them to submit to broad government oversight directed by a car czar to be named by Mr. Bush.

But even before the House vote, Senate Republicans voiced strong opposition to the plan, which was negotiated by Democrats and the White House.

At a luncheon with White House chief of staff, Joshua B. Bolten, on Wednesday they rebuffed his entreaties for support.

And on Thursday morning, Mr. McConnell dealt a death blow to the House-passed bill, giving a speech on the Senate floor in which he said that Republican senators would not support it mainly because it was not tough enough.

“In the end, it’s greatest single flaw is that it promises taxpayer money today for reforms that may or may not come tomorrow,” Mr. McConnell said.

Mr. McConnell, however, held out slim hope for a compromise suggesting that Republicans could rally around a proposal by Senator Bob Corker, Republican of Tennessee, to set stiffer requirements for the automakers.

Mr. Obama, whose transition team consulted with Congressional Democrats and the White House on the efforts to help the automakers, urged Congress to act in his opening remarks at a news conference on Thursday in Chicago.

“I believe our government should provide short-term assistance to the auto industry to avoid a collapse while holding the companies accountable and protecting taxpayer interests,” he said. “The legislation in Congress right now is an important step in that direction, and I’m hopeful that a final agreement can be reached this week.”

But in Washington, there was little appetite among Senate Republicans for yet another multibillion-dollar bailout of private companies. Still, with the Democrats and the White House eager to reach a deal, Mr. Corker’s proposal became the subject of intense negotiations well into the evening.

Under his plan, the automakers would have been required by March 31 to slash their debt obligations by two-thirds — an enormous sum given that G.M. alone has more than $60 billion in outstanding debt.

The automakers would also have been required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees in the United States.

It was over this proposal that the talks ultimately deadlocked with Republicans demanding that the automakers meet that goal by a certain date in 2009 and Democrats and the union urging a deadline in 2011 when the U.A.W. contract expires.

G.M. and Chrysler have said the two companies would likely not survive through this month without government aid, and the companies had already agreed to carry out sweeping reorganization plans in exchange for the help.

The negotiations over Mr. Corker’s proposals broke up about 8 p.m. and Mr. Corker left to brief his Republican colleagues on the developments.

The Republicans senators emerged from their meeting an hour later having decided they would not agree to a deal. Several blamed the autoworkers union.

“It sounds like the U.A.W. blew it up,” said Senator David Vitter, Republican of Louisiana.

Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee and a leading critic of the auto bailout proposal, said: “We’re hoping that the Democrats will continue to negotiate but I think we have reached a point that labor has got to give. If they want a bill they can get one.”

The last-ditch negotiations made for a dramatic scene on the first floor of the Capitol, where high-level lobbyists for G.M. and Ford, as well as Stephen A. Feinberg, the reclusive founder of Cerberus Capital Management, the private equity firm that owns 80 percent of Chrysler, gathered with senators and legislative staff in an ornate conference room.

A Democratic aide said that there were no lobbyists present who represented Chrysler.

At times, various participants huddled in corners of the cavernous hallway outside the conference room, shielding their documents and whispering into their cellphones, as a throng of reporters and photographers waited nearby.

Some of the lobbyists and banking committee staff members huddled by two towering windows, looking out on a frigid rain that had been falling all day.