GM Moves Closer to Bailout as Wagoner Holds Talks With Bolten

By Jeff Green and John Brinsley

Dec. 13 (Bloomberg) -- General Motors Corp. moved closer to a possible government rescue yesterday as the Bush administration said it may tap a bank bailout fund for financing and GM's top executive discussed terms with administration officials.

GM Chief Executive Officer Rick Wagoner spoke by telephone with White House Chief of Staff Joshua Bolten and Treasury Secretary Henry Paulson about a short-term plan to keep the automaker solvent, a person familiar with the talks said.

The talks followed a statement by the White House that it would consider using the Troubled Asset Relief Program to help GM and Chrysler LLC following the Senate's rejection of an aid package the night before.

``Congress has really punted the ball over to the White House,'' John Bogle, founder of the $80.6 billion Vanguard 500 Index Fund, said in a Bloomberg Television interview. ``That will give them temporary stopgap aid. I do not think General Motors is going to go out of business.''

GM Chief Operating Officer Fritz Henderson also participated in yesterday's talks. GM Chief Financial Officer Ray Young and other executives probably will work on the details with administration staffers this weekend, although any agreement isn't likely until next week at the earliest, the person with knowledge of the matter said.

The administration is trying to keep GM and Chrysler from running out of money before the next Congress takes office Jan. 6, the person said.

Cerberus Too

Stephen Feinberg, founder of Chrysler owner Cerberus Capital Management LP, was also in talks with administration officials yesterday, people familiar with the discussions said.

Treasury spokeswoman Michele Davis didn't immediately respond to a call seeking comment. GM spokesman Tony Cervone and White House spokesman Tony Fratto wouldn't confirm the discussions. Chrysler spokeswoman Lori McTavish said the automaker isn't informed of Feinberg's schedule.

GM is reeling from almost $73 billion in losses since 2004 and a 22 percent slump in U.S. sales this year. The automaker last month said it lost $4.2 billion in the third quarter.

Chrysler has been battered by a 28 percent plunge in U.S. sales through November, the most among major automakers.

Senate Banking Committee Chairman Christopher Dodd said the Treasury Department has enough money left in its financial-rescue fund, or TARP, for an auto rescue. In addition, nine of the largest U.S. banks that received $125 billion in TARP money may also be able to help the car manufacturers, he said.

`Lot of Pockets'

``There are a lot of pockets you can go to, it seems to me, to meet this need,'' Dodd said at a press conference yesterday in Washington.

Dodd said he disagreed with Fed Chairman Ben S. Bernanke, who wrote in a Dec. 5 letter to Dodd that it's ``unclear'' whether carmakers have sufficient collateral to qualify for Fed loans.

House Speaker Nancy Pelosi, in a letter to President George W. Bush, said providing funds to the automakers ``is the right decision'' and urged him to require the same ``tough accountability and shared sacrifice'' from all sides in the industry as were set in a bill passed by her chamber this week.

Senator Bob Corker, a Tennessee Republican involved in failed efforts to forge a compromise with Dodd the night of Dec. 11, said providing TARP money without union commitments for restructuring and wage concessions would make the car companies ``less likely'' to become more competitive. Such a move would put ``good money after bad,'' Corker said in a Bloomberg Television interview.

Ensuring `Viability'

Neither the Treasury nor White House statements yesterday said whether any TARP funds provided would be accompanied by conditions. Paulson has insisted that any funds must include a plan ensuring ``viability'' for the automakers.

``Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms,'' White House spokeswoman Dana Perino said yesterday. ``However, 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.''

The Treasury Department ``will stand ready to prevent an imminent failure,'' spokeswoman Brookly McLaughlin said in a statement. Paulson had resisted Congress's bid to finance an industry rescue with TARP, saying the funds were intended only to bolster ailing banks.

Asked whether Bush will decide to provide the funds, Julian Zelizer, professor of history and public affairs at Princeton University in Princeton, New Jersey, cautioned that the president is willing to ``defy what seems politically or strategically inevitable.''

``That said, ending his presidency with the collapse of one of the most important U.S. industries would be disastrous to his legacy and, he is well aware, potentially disastrous to the health of the economy,'' Zelizer said. ``While it is impossible to say he will do this, all the arrows point in this direction.''

GM dropped 18 cents, or 4.4 percent, to close at $3.94 yesterday in New York Stock Exchange composite trading, and Ford Motor Co. rose 14 cents, or 4.8 percent, to $3.04. GM plummeted as much as 37 percent earlier. Ford tumbled 27 percent.

GM shares have plunged 84 percent this year and Ford's have dropped 55 percent. While Ford also is losing money, the automaker has said it's not seeking short-term aid from the government.

United Auto Workers

United Auto Workers President Ron Gettelfinger endorsed emergency aid from the TARP program or the Fed, saying the automakers would be liquidated without U.S. assistance.

Job losses from an automaker failure in 2009 would total 2.5 million to 3.5 million in 2009, including 1.4 million people in industries not directly tied to manufacturing, according to a Nov. 4 report from the Ann Arbor, Michigan-based Center for Automotive Research, which does studies for government agencies and companies.

Even with a possible new source of funds, GM and Chrysler's default risk in the coming months ``remains very high,'' Standard & Poor's credit analyst Robert Schulz said in a statement yesterday. ``In addition, we remain concerned about the spillover effects of an automaker failure'' on parts suppliers, he said.

GM's 8.375 percent bonds due in July 2033 lost 2 cents to 15 cents on the dollar, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. The yield was 57.6 percent.

Ford's 7.45 percent bonds due in July 2031 dropped 2.9 cents to 21.5 cents on the dollar, yielding 34.7 percent, Trace data showed.

To contact the reporters on this story: Jeff Green in Washington at jgreen16@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net.