White House considers ‘orderly’ auto bankruptcy

The president’s press secretary says he is ‘very close’ to a decision.

WASHINGTON (AP) — The Bush administration is looking at “orderly” bankruptcy as a possible way to deal with the desperately ailing U.S. auto industry.

With General Motors, Chrysler and the rest of Detroit anxiously holding its breath and waiting for a federal rescue, White House press secretary Dana Perino said, “There’s an orderly way to do bankruptcies that provides for more of a soft landing. I think that’s what we would be talking about.”

President George W. Bush, asked about an auto bailout, said he hadn’t decided what he would do but didn’t want to leave a mess for Barack Obama who takes office a month from Saturday.

Bush, like Perino, spoke of the idea of bankruptcies orchestrated by the federal government as a possible way to go — without committing to it.

“Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring,” he said during a speech and question-and-answer session at the American Enterprise Institute, a conservative Washington think tank. “These aren’t normal circumstances. That’s the problem.”

Perino said the White House was “very close” to a decision — though she wouldn’t give a timetable. She emphasized there were still several possible approaches to assisting the automakers, including short-term loans from the Treasury Department’s $700 billion Wall Street bailout program.

The Big Three automakers said anew that bankruptcy wasn’t the answer, as did an official of the United Auto Workers who called the idea unworkable and even dangerous. GM said a report that it and Chrysler had restarted talks to combine was untrue.

House Speaker Nancy Pelosi said on Capitol Hill that grim new unemployment data heightened the urgency for the administration “to prevent the imminent insolvency of the domestic auto industry.”

The California Democrat said Bush has the legal authority to act now, and should attach the accountability standards that were included in a $14 billion House-passed and Bush-supported carmaker bailout that died in the Senate last week. That plan would have given the government, through a Bush-appointed “car czar,” veto power over major business decisions at any auto company that received federal loans.

Prices of GM and Ford stocks were down sharply Thursday after the remarks out of the White House. Ford, unlike General Motors and Chrysler, is not seeking billions in federal bailout loans, but a collapse of the other two could hurt Ford as well.

Congressional aides in both parties who have been closely following the discussions suggested the talk of bankruptcy could be a tactic to extract more hefty concessions from the companies and union in exchange for granting short-term loans from Treasury’s financial industry rescue fund.

Perino said one factor preventing an announcement of action by the administration is that discussions continue with the various sides that would have to sign on to a managed bankruptcy — entities such as labor and equity holders in addition to the companies themselves.

A senior administration official said the talks between Bush officials and the Big Three and their stakeholders amount to information-gathering, not negotiating.

Harlan Platt, who teaches corporate turnarounds at Northeastern University in Boston, said the government may be waiting for an offer of an ownership stake in the companies, much as it received in return for capital plowed into banks. “You really have to ask the question: If this is good enough for Wall Street, why isn’t it good enough for Detroit?” he said.