The White House and Treasury Dept. said they are likely to help U.S. automakers avert bankruptcy after Republican senators defeated a bill late Thursday, Dec. 11, that would have provided $14 billion in taxpayer loans to the companies.

Members of Congress and auto executives were meeting all day Friday with White House officials to determine how much money will be released to General Motors (GM) and Chrysler, and on what timetable. Also, the Treasury, sources said, was also working out what oversight rules will be needed as part of the rescue package, and the other conditions the automakers and the auto-workers' union will have to meet. GM and Chrysler are known to be close to reaching their minimum levels of cash needed to sustain their operations.

For weeks, Democratic senators have called on the White House to use some of the $700 billion Wall Street bailout fund to make loans to GM and Chrysler, and to provide a line of credit to Ford (F), which is not in as dire financial shape as its two rivals. But the White House told Congress the fund was not created for industries outside of banks and financial-services companies.

After the auto-rescue bill died in the Senate following weeks of data indicating rising unemployment, however, the White House changed course. Another factor was the further decline in stock prices Friday morning, which analysts attributed to the likely bankruptcy of General Motors and Chrysler.

"Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," said Treasury spokeswoman Brookly McLaughlin.

The Treasury Dept. has about $15 billion of uncommitted funds left from the first $350 billion round of the Troubled Assets Relief Program, or TARP, authorized by Congress. That means it could cover the immediate needs of the auto companies without having to go to Congress. GM has said it needs $4 billion this month to keep paying its bills, and $12 billion total to get through to March.

A Breakdown over Wages?

Senate Minority Leader Mitch McConnell (R-Ky.) and Senator Bob Corker (R-Tenn.) said Thursday night on the Senate floor that negotiations broke down over the United Auto Workers' unwillingness to agree to a date for certain active workers' wages and benefits to be cut to match those of workers at non-union auto factories in the U.S., such as those of Toyota (TM) and Honda (HMC).

Senator Corker, who acted as a broker between the Republican caucus and the UAW and automakers, said Friday: "I feel a sense of surrealness today that we came so close to what would have been a landmark agreement."

Corker said he had asked the UAW to agree to language that would have made labor costs "competitive" with foreign-owned plants, and the definition would have been certified by the next Labor Secretary. Democratic senators would not have supported the language unless the UAW agreed to it.

UAW President Ron Gettelfinger on Friday took issue with the characterization that the talks broke down because of wages. "The wages discussions were about politics in the Republican caucus," said the union leader. Gettelfinger said he didn't want to get pinned down to specific language in the bill over "parity" or "competitiveness" because comparisons between Detroit and foreign automakers are complicated by the benefits held by the vast pool of union retirees.

Even if the union gave in, Corker may not have been able to get the deal passed. There may have been too much opposition no matter what the union was willing to do. "Corker couldn't deliver the Senate even if the UAW agreed," said Rep. Thaddeus McCotter (R-Mich.)

Negotiation Successes

The union, in negotiations with Corker on Thursday, agreed to take half of $21 billion of future health-care and benefit payments owed to it by the automakers in stock rather than cash. And they agreed to negotiate wage "competitiveness" over the next three months. Big investors and banks that hold automakers' bonds also agreed to accept a 70% writedown on the face value of their investments, and to take half of the rest in stock.

The bill language gave authority to a government-appointed "car czar," who would have had to certify the financial "viability" of the automakers by Mar. 31, including wage competitiveness. But Republican senators wanted specific language in the bill to address labor. Gettelfinger said that tactic was designed to "pierce the heart of organized labor."

Corker, despite his freshman status in the Senate, emerged as a major player in negotiations during the past three weeks as he came to favor a government-facilitated restructuring of the automakers instead of having them reorganize under Chapter 11 bankruptcy.

Corker encouraged Treasury Secretary Henry Paulson to adopt as much of the framework of the Senate bill as possible in granting the automakers some of the Wall Street bailout funds. "What we put forth in the bill, and nearly got a deal on, were loan covenants that the Treasury Secretary could adopt by fiat," said the senator.

Details of how Treasury may help the automakers are expected to emerge over the next few days.

If you're one of those fortunate workers who still enjoys company-supplied Internet access—or, if you've been laid off and just have lots of time on your hands—you've no doubt noticed the wave of bailout-inspired humor that's flooded blogs, YouTube, and Facebook pages. Much of it is, sad to say, subprime. But there are some gems out there (precious as a zero-percent T-Bill). We've thoughtfully collected some of the best.

First, the professionals. And by that I mean, of course, The Onion. For production values alone, it's hard to beat the video "Should the Government Stop Dumping Money into a Giant Hole?" Here the level of debate is actually higher than what you'll get on typical network TV coverage of the financial crisis. Then there's my personal favorite, from Jon Methven at the McSweeney's site, "The Economic Crisis Hits the Markson Family Monopoly Board." We may all be living on Baltic Avenue when this is over.

Alright, let's move on to the poetry. It's tough fitting Motown into meter, but the auto companies' pleadings have summoned up much car-crash imagery. Let's give it up for Kaneix, who bolted together "Small is Suddenly Beautiful."And Vanessa Giacoppo, who Twittered over this haiku (even the auto poetry is going Japanese!):

Last-ditch efforts to forge an agreement to rescue the U.S. automakers fell apart late Thursday, Dec. 11, when union officials refused fast and deep cuts in worker pay. The collapse created the real possibility that General Motors (GM) and Chrysler will face bankruptcy in a matter of weeks, unless the Treasury Dept. acts to prevent it.

Senate Minority Leader Mitch McConnell (R-Ky.) said on the Senate floor Thursday night that a refusal of the United Auto Workers, headed by Ron Gettelfinger, to agree to lower wages and benefits at parity with workers at Toyota (TM) and Honda (HMC) in the U.S. by a date certain in 2009 was the last sticking point preventing Republicans from supporting the bill.

"We were three words away from a deal," said Senator Bob Corker (R-Tenn.), who spent all day trying to broker an agreement between Republicans, the union, and the auto companies. Tennessee is home to a GM and Nissan (NSANY) plant, as well as a future Volkswagen (VOWG.DE) plant and several supplier facilities.

Officials from the UAW did not return phone calls at press time.

"It's disappointing that Congress failed to act tonight," the White House said in a prepared statement. "We think the legislation we negotiated provided an opportunity to use funds already appropriated for automakers and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds only go to firms whose stakeholders were prepared to make difficult decisions to become viable."

"A Loss for the Country"

The Senate rejected the bailout 52-35 on a procedural vote after the talks collapsed.

Senate Majority Leader Harry Reid (D-Nev.) called the bill's collapse "a loss for the country," adding: "I dread looking at Wall Street tomorrow. It's not going to be a pleasant sight."

The bill called for $14 billion to be divided between GM and Chrysler, both of which are at the financial breaking point as the recession and consumer credit crunch have crippled their finances. The companies, anticipating failure in the Senate, have hired bankruptcy law firms. Ford (F) has said it doesn't need federal assistance now but has asked for a $9 billion line of credit in case sales deteriorate below the current level.

According to Corker, bond holders that conferred with lawmakers Thursday agreed to take a 70% writedown on debt they hold from the automakers, and to take half of the remainder in stock. GM has $42 billion in debt, not counting payments the company must make to the union's health-care trust in 2010. As part of the deal, the UAW also agreed to take half of its future $21 billion in payments to its health-care fund in stock. "The companies would have been stronger than they have been in 40 years, or headed for Chapter 11," said Corker.

Senator Debbie Stabenow (D-Mich.) took a harsh and emotional tone with Republicans who voted against the bill. "Evidently the only thing that matters to those on the other side of the aisle is that workers make too much money," she said.

The House may have passed a rescue package for the auto industry, but Senate Republicans could stop it cold.

WASHINGTON, Dec 10 (Reuters) - The U.S. House of Representatives approved a bill on Wednesday to lend up to $14 billion to the three struggling U.S. automakers, General Motors Corp, Ford Motor Co and Chrysler LLC.

Introduced by Democrats, the bill is nearly identical to one pending in the Senate, where Republican opposition was making its chances for passage look uncertain.

The bailout proposal would extend taxpayer-funded loans or lines of credit to the Detroit Three and create a federal government post of 'car czar' to oversee the industry.

(Reporting by Kevin Drawbaugh; Editing by Tim Dobbyn) Keywords: AUTOS/BAILOUT VOTE

Detroit automakers laid out their worst-case business scenarios for Congress Tuesday, asking for up to $38 billion in taxpayer loans to survive the economic crisis and turn their companies around.

General Motors (nyse: GM - news - people ) is seeking up to $18 billion, Chrysler wants $7 billion and Ford (nyse: F - news - people ), which says it doesn't need a loan at the moment, is asking for a $9 billion line of credit--perhaps as much as $13 billion--in case the economy worsens.

The requests, filed Tuesday on Capitol Hill, were accompanied by extensive details of how the automakers plan to reduce labor costs, streamline products and restructure their balance sheets in order to return to profitability.

Chief executives from each of the companies will answer questions about their viability plans when they appear before Senate and House committees later this week.

America's carmakers have been steadily downsizing for years in an effort to become more competitive with foreign-based rivals. But the crisis that has brought at least two of them--GM and Chrysler--to the brink of bankruptcy is an opportunity to take more drastic measures.

Indeed, GM said it would cut its current stable of brands from eight to four--dumping Saturn, Saab and Hummer, and paring back Pontiac to a few niche models. GM also expects to reduce the number of dealers from 6,450 to 4,700 by 2012.

GM also plans to close nine powertrain, stamping and assembly plants in the U.S. by 2012, and reduce its total U.S. employment to between 65,000 and 75,000, from 97,000 today.

Citigroup's Uneasy Victory

The federal bailout calmed the market and seems to fence off Citi's toxic assets. But some investors wonder what it says about the state of other banks

It's been a difficult first year for Citigroup CEO Vikram Pandit. Jin Lee/Bloomberg News /Landov

Federal regulators got a fresh inside look at Citigroup's (C) books over the weekend—and it wasn't pretty.

The result: a new $306 billion federal bailout for the bank. On the one hand, it provides more clarity as to the lengths the government will now go to shore up the U.S. financial system. On the other hand, investors continue to be wary about whether Citi was worth saving from oblivion. Worse, some of them worry that if a bank with one of the highest capital ratios nearly went under, who's next?

"You had a tremendous amount of people looking inside at Citi in the last few days to figure out how bad it was, and they came away thinking that the capital markets can't handle this," says David Ellison, manager of the $185 million FBR Small Cap Financial Fund (FBRSX). "So, Citigroup wasn't a going concern. What does it tell you about the industry and everybody else all around the world that has the same assets?"

On Monday, at least, the market chose to view the bright side of the Citi deal. Citi's shares jumped 2.18, or 58%, to close at 5.95 on Nov. 24. And the prospect of stability for financial stocks lifted the broader market, as the Dow Jones industrial average gained 397 points, or 4.9%, to 8,443.39. The Standard & Poor's 500-stock index gained 52 points, or 6.5%, to 851.78.

Bailout Terms

Citigroup agreed to the unprecedented series of steps with the U.S. Treasury, the Federal Reserve Board, and the Federal Deposit Insurance Corp. to strengthen the bank's capital ratios, reduce risk, and increase its liquidity. Under the program, announced on Nov. 24, the Treasury will invest an additional $20 billion in Citi preferred stock under the Troubled Asset Relief Program (TARP), on top of $25 billion the bank received about a month ago.

Also, Citi will issue an incremental $7 billion in preferred stock to both the Treasury and the FDIC as payment for a government guarantee on $306 billion of securities, loans, and commitments backed by residential and commercial real estate and other assets. The bailout agreement also means that Citi must submit any executive compensation plans to the government for approval.

Under the guarantee, Citi will assume any losses on the $306 billion portfolio up to $29 billion on a pretax basis—meaning the government will assume 90% of any losses.

According to people familiar with the negotiations, the government struck a plan to "ring-fence" around about $300 billion in questionable assets, which will remain on Citigroup's books. That was the only group of assets for which the feds and Citi could agree on a potential value, sources say. That amounts to just 15% of Citi's total assets, which are a shade over $2 trillion.

The plan is not only good for the system, say those sources, but it provides cheap insurance for the government compared with the costs of a financial system in meltdown mode.

Sources also say that the calculations on the value of the portfolio were made on the "very unlikely event" that the U.S. economy has a downturn as severe as the Great Depression. The values of the assets in that $300 billion pool were based on projected cash flows for the life of the assets and not on their current and fluctuating distressed prices.

Wall Street barreled higher Monday in a relief rally over the government's plan to bail out Citigroup Inc. -- a move it hopes will help quiet some of the uncertainty hounding the financial sector and the overall economy. The Dow Jones industrials soared more than 500 points and the major indexes all jumped more than 6 percent, extending a steep rally that began Friday.

If the gains held in the final half-hour, the most volatile time of day on Wall Street, it would mark the first two-day gain since Oct. 30-31.

The advance comes even after the markets anticipated last week that some sort of rescue for Citigroup could occur. But investors nonetheless appeared emboldened by the U.S. government's decision late Sunday to invest $20 billion in Citigroup and guarantee $306 billion in risky assets.

Wall Street's enthusiasm surged not only because the bailout answered questions about Citigroup but also because many observers saw the move as offering a template for how the government might carry out other bank stabilizations.

The market rallied following announcement of the plan by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. to stabilize Citigroup. It's only the latest effort this year to support a banking system troubled by bad debt and flagging confidence. Besides implementing its $700 billion bailout plan for the overall financial industry, the government has bailed out insurance giant American International Group Inc. and taken over lenders Fannie Mae and Freddie Mac.

Jim Baird, chief investment strategist with Plante Moran Financial Advisors, said Wall Street was calmed by the government's decision to help prop up Citigroup but he predicted that the initial enthusiasm could give way to further questions about the effectiveness of the government's array of efforts to sew up problems in the financial sector.

"I think, at a minimum, what you're seeing today is some relief that, first of all, they're stepping in to do something," he said. "There's still more questions than answers surrounding whether what's been done is going be enough."

In the final half hour of trading, the Dow rose 518.03, or 6.44 percent, to 8,564.45.

Broader stock indicators also jumped. The Standard & Poor's 500 index advanced 62.12, or 7.76 percent, to 862.15, and the Nasdaq composite index rose 91.34, or 6.60 percent, to 1,475.69.

The Russell 2000 index of smaller companies rose 31.79, or 7.82 percent, to 438.33.

The rise in stocks follows a rally Friday that saw the Dow industrials jump 494 points, or 6.5 percent. The other major indexes also rose sharply. Still, stocks ended the week with a loss after heavy selling Wednesday and Thursday.

Lancz said Friday's rally and Monday's follow-up reflect a renewed sense that Washington is taking steps to help repair the markets and that the scope of selling for much of last week had left the market overdue for a rally.

"The market is looking for some stewardship. It's at least adding to the bleak confidence that investors have," he said, referring to the Citigroup plan as well as the overtures of the still-forming Obama administration.

Bond prices were mixed Monday as investors examined the government's bailout plan for Citigroup. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.36 percent from 3.20 percent late Friday.

The Treasury bill market showed continuing high demand, a sign of investors' caution. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.02 percent from 0.04 percent late Friday.

The dollar was mostly lower against other major currencies, while gold prices rose.

Light, sweet crude rose $4.61 to $54.54 on the New York Mercantile Exchange.

Despite Mondy's gain, Baird said the uncertainty over whether the government's cocktail of direct investments in financial houses and support of debt obligations will prove effective has led to the stock market volatility. The concerns about banks and the broader economy are likely to continue, he said.

"Just the sheer breadth of potential outcomes is very, very wide which I think makes it difficult for investors to determine how do you play it from here."

Stocks briefly came off their highs of the session in the middle of the session, with the Dow Jones industrial average paring its gain from 300 points to 200 points, as President-elect Obama formally named his economic team but didn't offer specifics of an economic stimulus package nor state that he would push back a plan to raise taxes on the richest Americans. He reiterated his goal of creating 2.5 million jobs during the next two years.

Alan Lancz, director at investment research group LanczGlobal, said that while the market might have wanted a firmer commitment against raising taxes, it was too soon for Obama to outline specifics. Lancz expects the new administration wouldn't rush to implement the hikes if the economy appeared too weak.

"There's so many balls in the air right now he'd be foolish to make specific comments," Lancz said, noting that the economic picture could change greatly by Inauguration Day, which is Jan. 20.

Wall Street shrugged off a larger-than-expected drop in sales of existing homes last month as investors instead focus on the government's plans for the financial sector. And while the housing numbers fell short of expectations, Wall Street expected sales would fall sharply after last month's upheaval in the financial markets.

The National Association of Realtors says sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million in October. That's down from 5.14 million in September.

The financial sector led Monday's advance, fueled by a sense that the government might be developing a more nuanced yet ready-to-apply medicine for financial firms. Citi surged $2.21, or 59 percent, to $5.98 following the government's decision to inject capital into the company. Bank of America rose $2.89, or 25 percent, to $14.37, while JPMorgan Chase & Co. rose $4.33, or 19 percent, to $27.05.

Advancing issues outnumbered decliners by about 8 to 1 on the New York Stock Exchange, where volume came to 1.24 billion shares.

Overseas, Britain's FTSE 100 jumped 9.84 percent, Germany's DAX index surged 10.34 percent, and France's CAC-40 rose 10.09 percent. Hong Kong's Hang Seng index fell 1.59 percent; markets in Japan were closed for a holiday.

Wall Street showed its relief Monday over the government's plan to bail out Citigroup Inc. - a move it hopes will help address some of the uncertainty hounding the financial sector. Stocks jumped more than 3 percent, extending Friday's big rally.

While the markets anticipated last week that some sort of rescue could occur, investors appeared emboldened by the U.S. government's decision late Sunday to invest $20 billion in Citigroup and guarantee $306 billion in risky assets. The move by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. is only the latest effort this year to support a banking system troubled by bad debt and flagging confidence.

Besides implementing its $700 billion bailout plan for the overall financial industry, the government has bailed out insurance giant American International Group Inc. and taken over lenders Fannie Mae and Freddie Mac.

The market is also a little more optimistic because President-elect Obama is set to introduce his economic team on Monday and has called for another economic stimulus. His plan targets saving or creating 2.5 million jobs during the next two years. Any plan is expected to exceed the $175 billion Obama proposed during the campaign.

The moves by the government to again step in and help a troubled bank as well as perhaps the broader economy helped buoy investor sentiment. Still, investors remain cautious because the nation faces a difficult economy and the stock market likely will continue to see volatility.

In midmorning trading, the Dow Jones industrial average rose 317.00, or 3.94 percent, to 8,363.42.

Broader stock indicators also jumped. The Standard & Poor's 500 index advanced 35.29, or 4.41 percent, to 835.32, and the Nasdaq composite index rose 60.83, or 4.39 percent, to 1,445.18.

The rise in stocks follows a rally Friday that saw the Dow industrials jump 494 points, or 6.5 percent. The other major indexes also rose sharply. Still, stocks ended the week with a loss after heavy selling Wednesday and Thursday.

Bond prices were mixed Monday as investors examined the government's bailout plan for Citigroup. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.29 percent from 3.20 percent late Friday.

The Treasury bill market showed continuing high demand, a sign of investors' caution. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.02 percent from 0.04 percent late Friday.

The dollar was mostly lower against other major currencies, while gold prices rose.

Wall Street shrugged off a larger-than-expected drop in sales of existing homes last month as investors instead focus on the government's rescue for Citigroup. And while the housing numbers fell short of expectations, Wall Street expected sales would fall sharply after last month's upheaval in the financial markets.

The National Association of Realtors says sales of existing homes fell 3.1 percent to a seasonally adjusted annual rate of 4.98 million in October. That's down from 5.14 million in September.

Citi shares surged $2.61, or 69 percent, to $6.38 on word of the government's injection of capital into the company.

Health care company Johnson & Johnson said Monday it would acquire Omrix Biopharmaceuticals Inc. for $438 million. The move is aimed at expanding J&J's surgical product unit; J&J will pay $25 per share for the company, an 18 percent premium over Omrix's close Friday of $21.16.

J&J rose 62 cents to $58.97, while Omrix rose $3.41, or 16 percent, to $24.57.

Overseas, in afternoon trading, Britain's FTSE 100 jumped 5.32 percent, Germany's DAX index rose 7.49 percent, and France's CAC-40 rose 7.34 percent. Hong Kong's Hang Seng index fell 1.59 percent; markets in Japan were closed for a holiday.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

Chinese automaker Geely reported sales for October dropped 7.4% from last year.

As China's economy boomed during the past few years, dozens of Chinese companies jumped into the car business, setting up factories to produce autos for the growing middle class. Thanks to those new automakers, many of them backed by local governments, today there are more than 100 Chinese auto manufacturers with a combined production capacity of over 9.6 million vehicles, according to Changjiang Securities. Problem is, Chinese purchased only 8.8 million vehicles last year, according to official figures.

Now, with the global credit crisis cooling China's economy, demand for cars is growing even weaker. Growth in auto sales is expected to be just 5% this year, compared with 22% in 2007, estimates the China Passenger Car Assn. On Nov. 11, Geely reported sales for October had dropped 7.4% from last year. Last month, SAIC Motor reported quarterly profits dropped 78%, to $38 million; the Shanghai automaker's stock price has dropped 78% this year, compared with a 62% fall in the Shanghai stock index.

With sales in the doldrums and investors shunning their stocks, some of the leading Chinese automakers are taking a page from General Motors (GM), Ford (F), and Chrysler's handbook and calling for China's government to support the auto industry. However, talk of a bailout seems to be wishful thinking. Beijing failed to include any measures to help the industry in the $586 billion stimulus package announced earlier this month. And most of the largest automakers in China, including Dongfeng Automobile, SAIC Motor, and Tianjin FAW Xiali Automobile, are still profitable.

No Life Preservers

That's why the government seems to be taking a hands-off approach. It's not providing assistance to the country's automakers, but it's not forcing a much needed consolidation, either. "It's not like in the U.S. where they are going to get a lot of help with their business," says Henry Li, head of exports at BYD Auto in Shenzhen, which has halved its 2008 export target to 10,000 vehicles in light of the crisis. "The government does not provide financial support. The only thing they can do is help organize fairs to increase domestic consumption."

With an eye on long-term sustainability, Beijing is encouraging the auto industry to develop more fuel-efficient cars. For instance, in September the government raised the consumption tax on luxury cars, which had been 20%, to 40%. Chen Jianguo, deputy head of the industrial coordination department at the National Development & Reform Commission, said earlier this month that the government was considering slashing the sales tax, which accounts for one-tenth of a car's price, on alternative-energy vehicles to boost demand. Beijing is also likely to levy a gas tax, offsetting a possible fall in gasoline prices, in a step toward allowing the market to set prices instead of the state.