The fight over US government aid to the car industry focused on frantic negotiations in the US Senate on Thursday night after Mitch McConnell, the leader of Republican forces in the Senate, defied the Bush administration by rejecting a deal to extend a $14bn loan to Detroit.
Meanwhile, in the face of the potential congressional setback, GM has started working with law firm Weil, Gotshal & Manges on a bankruptcy filing in case it proves necessary, according a person close to the matter.
While another person close to GM stressed on Thursday that the automaker has no intention of filing for bankruptcy, others said the deterioration of the rescue bill in the Senate was forcing it to face other options.
Although the loan package was easily passed in the House of Representatives on Wednesday night, by 237 votes to 170, Mr McConnell savaged it on the Senate floor on Thursday, labelling the proposal “not nearly tough enough” on the car sector.
Accusing the government of “picking favourites” in its efforts to lend to General Motors and Chrysler, he said the deal’s “greatest single flaw is that it promises taxpayer money today for reforms that may or may not come tomorrow”.
Instead, he backed other Republican senators’ efforts to impose further conditions on aid. Mr McConnell wants to bring Detroit companies’ labour costs in line with those of foreign manufacturers in the US, a compulsory debt/equity swap and automatic Chapter 11 bankruptcy protection for participating companies that fail to comply. The administration says the legislation already takes strong steps to push the companies to restructure.
Mr McConnell’s stance is critical to the future of the car industry, since a compromise between him and the Democratic and administration supporters of a loan would assure its passage.
Negotiations between the Democrats and Republicans continued on Thursday night as Harry Reid, Senate majority leader, said any deal would “overwhelmingly pass the Senate” but would require another vote in the House because of the changes being introduced. He said: “There’s no need to vote on the House measure because it’s pretty clear there aren’t enough votes [in the Senate] to pass that.”
Mr Reid added: “We’ve had a lot of co-operation today. That doesn’t mean that we’re going to be able to work something out ... but right now, I think we’re a lot further down the road than I thought we would be.”
Similar negotiations are likely to become common in Washington. Since Mr McConnell’s Republicans will command at least 41 Senate seats, he is set to play a big role in frustrating or facilitating the new administration’s legislative agenda.
“Beginning next month McConnell is the leader of the Republican party in the US,” said a Republican aide. “But he is not an imposing personality and the party is confused about what to make of the economic reality the country finds itself in.”
At present, many Republicans voice a mixture of confusion and regret on whether the $700bn troubled asset relief programme, backed by many of their representatives in the Senate, is effective or counterproductive.
While the Senate has prided itself as a voice of moderation, President George W. Bush’s influence over the chamber has ebbed. Many Republicans from the south are also less sympathetic to Detroit. In such circumstances, Mr McConnell finds himself at the heart of an ideological debate.
Mark Sanford, Republican governor of South Carolina, told MSNBCL: “This string of bail-outs threatens the very market-based system that has created the wealth that this country has enjoyed.” He said the US had “two automotive industries”, comparing Detroit’s “excessive costs, payrolls, [and] union contracts” and “the rest of the automotive industry across America, which, in many cases, is doing much, much better; in some cases, even thriving”.
Dana Perino, Mr Bush’s spokeswoman, said there was a chance the legislation would pass but added that it was a “tough vote”.
For updates on the Detroit bill go to www.ft.com/detroit
