White House adds $6 billion to auto bailout

The White House upped its commitment to bail out the
American auto industry, moving late on Monday to send General Motors Corp. and
its financing arm another $6 billion in federal money.

The new money brings the total of taxpayer-backed support to the carmakers to $23.4 billion.

{mosads}The latest move comes after the Bush administration
supported a $17.4 billion loan package less than two weeks ago to prop up
GM and Chrysler LLC through March 2009 as part of an effort to encourage the
industry to restructure. The administration acted after a bill supported by the
White House and congressional Democrats was blocked by Senate Republicans wary
of sending billions in taxpayer dollars to a struggling industry.

GM and Chrysler had both warned of their dire financial
situations, with GM cautioning that it could not survive December without
financial help. Ford Motor Corp., in the strongest financial situation of the
Big Three automakers, will not receive federal money.

The Treasury Department will purchase a $5 billion equity
stake in GMAC, the financing arm of GM, to spur lending to help consumers
purchase cars. The money will come from the $700 billion financial rescue
package that was intended originally for financial institutions. Treasury
Secretary Henry Paulson had at first strongly opposed using the money for the
auto industry.

An additional $1 billion will go to GM that will in turn
use the money to buy stock in GMAC.

GMAC was approved for bank holding status last week,
meaning it will be regulated by the Federal Reserve Bank. The move gives it a
stronger claim to access for funds under the financial rescue package, the Troubled
Asset Relief Program.

Paulson had intended to leave the last $350 billion of
TARP funds to President-elect Obama’s administration, but the new $6 billion commitment
raises questions about whether the administration will seek access to the money
before Obama takes office. The administration must seek congressional approval
for access to the rest of the money, but lawmakers on both sides of the aisle
have heaped criticism on Paulson’s handling of the program, particularly as he
shifted from the original intention of purchasing troubled assets to later
using the money chiefly to buy equity stakes in banks.

Congress could choose to add new restrictions on how the
rest of the TARP funds are spent.

Democratic lawmakers have discussed efforts requiring the
Treasury Department to use some of the money to reduce foreclosures and support
a program to modify existing mortgages.

The first $350
billion has been committed already to a range of banks, financial institutions
and the automakers, but not all of the money has actually been spent. The money
for GM and GMAC will come from this allocated yet unspent pool of money.