Frank’s Plan Gives GM, Ford, Chrysler $25 Billion (Update1)

Nov. 12 (Bloomberg) — General Motors Corp., Ford Motor Co. and Chrysler LLC would get $25 billion in additional aid from the Treasury’s financial-rescue plan under a proposal by House Financial Services Committee Chairman Barney Frank.

Legislation is needed to authorize the Treasury to use part of its $700 billion rescue fund for the auto industry, Frank said today. He scheduled a hearing on the measure for Nov. 19.

“The consequences of a collapse of the American automobile industry would be particularly troublesome,” Frank, a Massachusetts Democrat, told reporters in Washington.

Frank said the plan “will be written in a way that we are protected” and that ensures automakers cannot use the money “imprudently.” He said they were still working on details of the plan.

Frank’s plan to move ahead with aid for automakers came as some lawmakers questioned whether the package was necessary or fair.

Representative Spencer Bachus of Alabama, the top Republican on Frank’s committee, said a bailout would be unfair to competing car manufacturers and would only spur other industries to turn to lawmakers for financial assistance.

`Where Does This Stop?’

“Where does this stop?” Bachus said. “We started with financial services, we went from banks to insurance companies,” he said. “Does it end with manufacturing? What about retail?”

In addition to passing through the Democratic-controlled House, any legislation must be approved by the Senate, where the minority Republicans can stall legislation through endless debate. There, the top Republican on the Banking Committee, Senator Richard Shelby of Alabama, signaled that he opposes aid to automakers.

“The financial situation facing the Big Three is not a national problem, but their problem,” Shelby said in a statement. “I do not support the use of U.S. taxpayer dollars to reward the mismanagement of Detroit-based auto manufacturers in such a way that allows them to continue and compound their ongoing mistakes.”

House Speaker Nancy Pelosi said yesterday she wants “immediate action” to give automakers additional assistance as shares of General Motors Corp. yesterday hit their lowest level since 1943 and analysts say the company faces possible bankruptcy. President George W. Bush hasn’t yet said he would approve any further aid to those companies.

GM, Ford, Rise

GM climbed 16 cents, or 5.5 percent, to $3.08 at 2 p.m. in New York Stock Exchange composite trading after yesterday’s fall to a 65-year low. Ford rose 10 cents, or 5.6 percent, to $1.90.

Pelosi said any aid to the automakers would come with conditions, including restrictions on executive compensation, “a prohibition on golden parachutes” and “rigorous independent oversight.” Democratic lawmakers said today the aid should be contingent on the automakers restructuring the industry to be more competitive.

“We should consider giving $25 billion to save the industry but under certain restrictions,” Paul Kanjorski, a Pennsylvania Democrat and top member of the House Financial Service Committee, told reporters. “We have to make sure that we’re not just going to throw it down a rat hole, that we’re going to have a competitive world industry coming out of it.”

Massachusetts Democrat Representative Stephen Lynch said any aid has to ensure taxpayers will recoup that money at some point in the future, and that lawmakers should require the industry to build more fuel efficient cars.

“There needs to be incentives like that to force them to change the way they do business,” Lynch said.

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