More auto industry-linked businesses eligible for bailout

The U.S. Treasury threw the door open to taxpayer financing for more companies and industries by drafting broad guidelines on auto industry aid. The guidelines, published Wednesday, would let officials provide funds to any company they deem important to making or financing cars. That leaves room to provide money from the Troubled Asset Relief Program beyond loans already committed to General Motors (GM), GMAC and Chrysler.
"There are going to be other industries that are going to have just as good a case," as the auto companies, former St. Louis Federal Reserve Bank president William Poole said in an interview. "We don't know what those other industries are going to be. Where does this process stop?"
The Motor & Equipment Manufacturers Association has been lobbying for use of federal funds as a backstop for parts makers in case they can't collect money owed by automakers.
The Treasury guidelines may encourage more guessing on what companies and industries are next, said Vincent Reinhart, resident scholar at the American Enterprise Institute in Washington.
FIND MORE STORIES IN: Barack Obama Detroit Connecticut General Motors Chrysler LLC Washington-based Enterprise Institute Stamford Delphi Himanshu Patel Lyle Gramley Troubled Asset Relief Program Stanford Group William Poole Vincent Reinhart Equipment Manufacturers Association Treasury officials "much prefer discretion, and so they would view the statement as being constructively ambiguous," Reinhart said.
The guidelines don't bind the government, so President-elect Barack Obama will have plenty of leeway to decide who succeeds and fails when he takes office. The bailout originally designed to buy assets from banks has become a fund to prop up lenders, insurers, carmakers and their finance arms and, now, any company that's important to those industries.
"The further you go, the slipperier the slope becomes, the more you open the door to anyone who says, 'Look, my firm is in trouble, I need help, too,' " said Lyle Gramley, a former Fed governor and now a Washington-based senior economic adviser for Stanford Group. "We don't want to go any further down that road than we absolutely have to."
The Treasury already has provided $6 billion in aid to GMAC, the financing arm of GM, and up to $17.4 billion for GM and Chrysler from the $700 billion bank rescue fund. GM on Wednesday got the first $4 billion loan of a $13.4 billion package. Chrysler is still negotiating details for its $4 billion.
As for expanding the program, the guidelines state: "Treasury will determine the form, terms and conditions of any investment made pursuant to this program on a case-by-case basis. Treasury may consider, among other things, the importance of the institution to production by, or financing of, the American automotive industry."
This week's deal between the Treasury and GMAC opened a new rescue program for the auto industry as part of the TARP. Treasury said then that the GMAC agreement was "part of a broader program to assist the domestic automotive industry in becoming financially viable."
There's been speculation that GM's bankrupt former parts unit Delphi might qualify for aid. "We would not be surprised to see additional government funds to GM to support a Delphi solution," JPMorgan Chase analyst Himanshu Patel said in a report.
With the GMAC loans, the Treasury has now earmarked $358.4 billion of the $700 billion bailout, though actual payouts have been less. When Congress OK'd TARP in October, it gave the administration the first of two $350 billion installments. After injecting capital into GMAC on Dec. 29, the Treasury called again for release of the rest.
The auto-rescue program could range from full bailouts of companies to merely keeping others going while in bankruptcy to ensure production continues, said Kirk Ludtke, an analyst at CRT Capital Group in Stamford, Conn.
"The Detroit 3 are still at risk," Ludtke said. "The government is acknowledging it needs to assure at least an orderly restructuring of the key players in the auto industry."