Congress agrees to bail-out of Ford, GM and Chrysler

Lawmakers on Capitol Hill this weekend agreed to a short-term bail-out of America’s three biggest carmakers to prevent an imminent collapse of the ailing industry.

The White House and Democrats in Congress are this weekend working on details of the package to provide about $15bn (£10bn) in loans to General Motors, Ford and Chrysler. The legislation is being crafted for the beleaguered industry, which has called for a government bailout as the global recession has led to plunging sales of cars.

House Speaker Nancy Pelosi said the House of Representatives would consider legislation next week to provide “short-term and limited assistance” to the industry, which will undergo “major restructuring.”

She said: “Congress will insist that any legislation include rigorous and ongoing oversight to guarantee that taxpayers are protected and that resources are directed to ensure the long-term viability and competitiveness.”

The short-term lifeline comes as the heads of the Detroit car manufacturers have this week faced two days of intense questioning by assorted politicians on Capitol Hill as they call on Congress for $34bn of loans to help them survive a severe economic downturn.

Although a rescue package is likely to be considerably smaller than this figure, politicians have recognised that the collapse of any one of the Big Three would have profound implications for an already damaged American economy.

The agreement to put together a bailout package came just hours after the government reported that employers slashed 533,000 jobs in November – representing the worst single month’s job loss in 34 years. The three carmakers together employ nearly 250,000 workers, and more than 730,000 others produce materials and parts for cars.

The focus of the short-term bridging loan is likely to be GM and Chrysler, which are most in need of immediate assistance. GM had said it needed $4bn before the end of this month, while Chrysler, which is understood to have hired Jones Day for restructuring and bankruptcy work, had wanted $7bn immediately. The Senate is scheduled to be in session next week.

A key breakthrough on the long-stalled bailout proposals is understood to have come when Ms Pelosi bowed to President George Bush’s demand that the aid come from a fund set aside for the production of environmentally friendlier cars. She, along with environmentalists, had instead wanted the administration to take money from the $700bn fund the government set aside for the financial industry.

Ms Pelosi said the billions of dollars that had been set aside to modernise plants to develop the green cars would be repaid “within a matter of weeks.”

Although the details of the legislation are still being thrashed out, it is understood that this could include the creation of a trustee or group of industry overseers to make sure the bailout funds were used by car manufacturers for their intended purpose. The funds are designed to last until March.