A New Assertiveness on Economy

By GREG HITT and JONATHAN WEISMAN

WASHINGTON -- Senate Majority Leader Harry Reid pledged Monday to press ahead with legislation giving government aid to Detroit's ailing auto makers, but prospects for passage before a new Congress arrives next year remained dim.

Warning that the industry faces a "potential meltdown," Sen. Reid is pushing legislation that would give the auto companies access to the $700 billion government pool created to stabilize financial markets. The Nevada Democrat's move set the stage for a test vote later this week that will determine whether a lame-duck Congress is prepared to extend financial help beyond the banks and Wall Street.

Though the bill's prospects of passage remain low in the short term, the drive by Democratic leaders to help the Big Three auto makers underscores the party's determination to take a more assertive role in guiding the U.S. economy.

The Senate bill, which was introduced late Monday, would allow the government to extend "bridge" loans to auto makers and parts suppliers amid "extraordinary and exigent circumstances" that have prevented the industry from receiving credit, according to a draft of the measure. Those circumstances threaten "a systemic adverse effect on the economy," according to the draft.

To qualify for loans, companies would have to submit a detailed plan showing how they intend to return to a sound financial footing, and how any funds would be used to improve their capacity to produce more fuel-efficient vehicles.

As with the market rescue, any auto aid would be administered by the Treasury Department. The legislation would require the government to take warrants in the companies and impose limits on executive compensation, for example barring bonuses for executives making more than $250,000.

The measure would make any aid to the auto companies subject to the same oversight imposed on financial-services companies. For example, the Government Accountability Office, a watchdog arm of Congress, would monitor the assistance. The independent oversight provided in the legislation is less stringent than what is called for in a competing House proposal, which was released late Monday evening. The House measure provides much the same assistance to the industry, but would empower a strengthened Oversight Board -- which was created in the original market-rescue bill -- to scrutinize certain investments by the auto companies. The bill would give the board, in consultation with Treasury, "the authority to review and prohibit any asset sale, investment, contract, or commitment proposed" proposed by the auto companies in excess of $25 million, for the duration of any loan, according to a summary of the bill.

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Reuters

U.S. Senate Majority Leader Harry Reid (second from right) makes a statement beside newly elected Senators Jeff Merkley (left), Jeanne Shaheen (right) and Kay Hagan.

Democrats oppose a rival approach to helping auto makers favored by the White House, which would speed release of $25 billion in already approved loans originally meant to help the industry retool. White House press secretary Dana Perino said Monday that the Senate bill "fails to require auto makers to make the hard decisions needed to restructure and become viable."

The Democrats' approach resembles one outlined by President-elect Barack Obama, who has promised more government involvement in the banking, housing and energy sectors. Obama aides have been in near-daily contact with congressional staff working on the Detroit rescue, aides on Capitol Hill and Obama advisers say.

One idea floated by an Obama adviser is to put a government representative on the boards of rescued auto makers, to ensure they hew to conditions attached to the loans, including the rapid development of a more fuel-efficient fleet of vehicles.

The sweep of the evolving plans for government involvement in a range of sectors, from housing and banking to energy and autos, is raising questions about how far the U.S. should go in embracing an "industrial policy" to shape the national economy. David Bonior, an Obama adviser on the auto industry, said "The times and the planetary crisis demand it." He added, "The trick is to do it within the construct of capitalism -- enlightened capitalism."

Along with auto dealers and industry suppliers, General Motors Corp., Ford Motor Co. and Chrysler LLC are lobbying hard for government relief.

In a sign GM is running low on cash, the auto maker has decided to delay reimbursing dealers for incentives and other rebates, company spokesman John McDonald said Monday. Payments due to dealers on Nov. 28 will instead be paid Dec. 11, and those due Dec. 4 will be paid Dec. 18. Mr. McDonald said the move is one of many steps the auto maker is taking to bolster liquidity.

The company burned through $6.9 billion in the third quarter and has said it could run out of money as soon as the first half of 2009.

Amid the maneuvering, the Senate Banking Committee will convene a hearing Tuesday with testimony from executives of Detroit's Big Three and the head of the United Auto Workers Union.

Sen. Reid is moving forward with a two-pronged strategy this week to advance auto aid. On the Senate floor Monday, he said he intends to pair the auto-assistance package with a jobless-benefits bill. He said he'd also fold the auto assistance into a separate $100 billion stimulus package, which would include investments in roads and bridges and aid to cash-strapped states, among other things.

Mr. Reid urged lawmakers to respond now to the industry's problems, rather than deferring action until next year when Democrats, with stronger majorities, will have greater leverage to control the agenda.

"I ask my colleagues to show the American people that in the face of tremendous economic pain and uncertainty, we will not wait until January," he said, as the Senate opened a lame-duck session.

Write to Greg Hitt at greg.hitt@wsj.com and Jonathan Weisman at jonathan.weisman@wsj.com