GM Chief Says He’d Accept Strict Conditions on Federal Bailout

By John Hughes and Nicholas Johnston

Dec. 5 (Bloomberg) -- General Motors Corp. Chief Executive Rick Wagoner told lawmakers he would accept strict conditions for a U.S. loan to stay afloat, including a promise to return the money and file for bankruptcy if his company doesn’t fulfill the terms.

Hurdles remain for a plan to keep GM and Chrysler LLC from running out of cash, as members of Congress and the Bush administration disagree on a funding source. Lawmakers are considering options such as providing automakers with enough aid to get them through next year’s first quarter on condition they make significant progress on restructuring their operations.

“We’ve got the makings of putting something together,” Senate Banking Chairman Christopher Dodd, a Connecticut Democrat, told reporters after a hearing by his committee yesterday in Washington. “We’ve got a working situation here, and I’m going to try to get it done.”

Wagoner, Chrysler’s Robert Nardelli and Ford Motor Co.’s Alan Mulally will face U.S. House members today as they renew their push for quick action. GM says it needs $8 billion while Chrysler is seeking $4 billion to keep from running out of cash by early next year.

Senator Bob Corker suggested giving GM $10 billion as long as bondholders settle for 30 cents on the dollar, workers accept wages similar to those of foreign automakers’ U.S. employees, and half of GM’s scheduled health care payment is folded into the company as equity. If the automaker fails to take the steps by March 31, it would have to return the money and declare bankruptcy, he said.

‘Take Our Money’

“Would you take our money?” with those conditions, Corker, a Tennessee Republican, asked Wagoner yesterday.

“Yes I would,” Wagoner replied.

“A big stick by the government in this case could actually cause your company, for the first time in modern history, to have the tools and the levers to actually do the things that will make you strong for the future,” Corker added.

The comments were a shift for Corker, who last month told reporters he was “very skeptical” about an auto aid package and that it may be better for the companies to reorganize in bankruptcy.

Lawmakers have said they may schedule votes next week. Yesterday’s hearing “was very helpful,” said Jim Manley, spokesman for Senate Majority Leader Harry Reid, a Nevada Democrat. “Any help must be conditioned on specific requirements to ensure viability and strong oversight.”

Bailout Funds

Senator Thomas Carper, a Delaware Democrat, said he is considering legislation to require banks that benefited from the federal bailout program to lend money to keep GM and Chrysler running. That would give time for Congress and President-elect Barack Obama to devise a longer-term solution, Carper said.

“The likelihood has improved” for getting something done, Carper told reporters.

Senator Charles Schumer, a New York Democrat, discussed the possibility of legislation that would give automakers “not a small sum” and have a designee of the president, probably the Treasury Secretary, bring the parties together and work out concessions that would allow the money to flow.

The three automakers together are asking for as much as $34 billion in federal aid. “I am sorry to be asking for this support,” Wagoner told reporters before yesterday’s hearing.

The companies’ leaders were trying to recover from their appearance before Congress two weeks ago when they were criticized for arriving in Washington in separate private jets to plead for funds. They left empty-handed.

Disagreement Over Funds

Disagreement between House Speaker Nancy Pelosi and President George W. Bush over the source of aid for U.S. automakers remains an impediment to getting a deal done.

Pelosi, a California Democrat, wants to rescue the car companies by tapping a $700 billion bailout fund for the financial industry. Reid said Dec. 3 that such a plan doesn’t have enough votes to pass. Bush and congressional Republicans are pushing to instead use $25 billion in Energy Department funds for the development of fuel-efficient vehicles.

In a letter to Bush yesterday, Pelosi, Reid, Dodd and House Financial Services Chairman Barney Frank of Massachusetts urged use of Treasury funds for emergency loans to the automakers. The lawmakers said it’s becoming clear that an automaker bankruptcy would have a “major direct and negative impact on the financial sector,” which the emergency Treasury money is designated to protect.

Plans Not ‘Serious’

Other Republicans have said they don’t want to aid automakers at all. Republican Senator Richard Shelby of Alabama told the auto chiefs yesterday their plans weren’t “serious” and that he still opposes giving them aid.

“If you made this presentation to get a bank loan I suspect that any sensible banker would summarily dismiss your request,” Shelby said.

Acting U.S. Comptroller General Gene Dodaro said yesterday, in response to a question from Shelby, that the Federal Reserve had authority to put money into the carmakers, as it did with insurer American International Group Inc. In a Dec. 3 letter to Fed Chairman Ben S. Bernanke, Dodd had also asked whether the Fed had the authority to put money directly into the automakers.

Fed officials have said they want the solution for automakers’ cash problems to come from Congress and taxpayers, not the central bank.

Edward Lazear, chairman of the White House Council of Economic Advisers, said that while Bush has expressed his desire for the U.S. auto industry to survive, the automakers must convince Congress and the administration they have a “viable” plan to continue in business.

‘Too Early’

“It’s too early to give them a grade,” Lazear said in an interview on Bloomberg Television. Still, Lazear said he has seen “some constructive” elements in the proposals.

Senator Bob Casey, a Pennsylvania Democrat, said he could support the money coming from the financial-rescue package or Energy Department loans. He predicted lawmakers would reach a deal. “We just have to be creative and dogged about trying to get there,” Casey said.

Dodd outlined the complexity of the task during his committee’s hearing. “To ask 535 members of Congress in the space of 72 hours to try and craft something here is challenging, to put it mildly,” he said.

Dodd added, “We need to try and sit down over these next 24, 48 hours or so and see what we can do.”

To contact the reporters on this story: John Hughes in Washington at Jhughes5@bloomberg.net; Nicholas Johnston in Washington at njohnston3@bloomberg.net.