Struggling US car giants will get cash lifeline

Published on Saturday 6 December 2008 13:37

US LAWMAKERS have reached an agreement to throw a $15bn-$17bn lifeline to the beleaguered American motor industry, according to sources in Washington.

Two senior congressional aides have told reporters that Democrat leaders and the White House have consented to provide short-term funding to the embattled Detroit motor industry, although the package is thought to fall far short of the $34bn bailout requested by General Motors, Chrysler and Ford.

The news comes as Vauxhall and other car manufacturers in the UK are reported to have approached the Business Secretary, Lord Mandelson, for financial guarantees that could save thousands of jobs in Britain.

The US deal, which is expected to be revealed in full this week, follows another round of negotiations over the future of the industry which continued well into the weekend.

Rick Wagoner, chief executive of GM, and Chrysler boss Bob Nardelli told the US House of Representatives' financial services committee on Friday that they would settle for a bridging loan of between $10bn and $14bn to stave off collapse in the next three months.

GM had originally called for $8bn in aid by January followed by a further $10bn next year, while Chrysler had requested an urgent $7bn bailout. Ford has sought access to $9bn of cash but insists it will only tap into the funds if US car sales take another turn for the worse.

It is understood the car giants will now settle for a smaller bridging loan with the expectation that they can negotiate a better rescue package with US President-elect Barack Obama when he takes office on January 20.

The step forward in negotiations comes after House speaker Nancy Pelosi dropped her insistence on Friday that any package for the car industry must come out of the $700bn financial rescue package drawn up by the Bush administration in October.

Lawmakers are understood to have been influenced by the latest US jobs report, which showed American employers in November made the largest number of job cuts in one month for 35 years.

In the UK, commentators say the Government will have to tread carefully, as any state aid to car manufacturers could be blocked by the European Union. However, it is thought Europe may be willing to take a softer stance towards emergency loans that will prevent thousands of job losses.

Concerns are also growing over the future of the Formula One industry following Honda's shock decision to withdraw from the competition on Friday.

Industry insiders say that other teams may also be in trouble, prompting Max Mosley, president of the Fdration Internationale de l'Automobile, to make an urgent plea for teams to reduce costs.