WORLD ECONOMY HOT NEWS

House Chairman Says Country "Held Hostage" By Unemployment, Making Help For Auto Industry Even More Urgent

(CBS/AP) A key House committee chairman said Friday that new bleak unemployment figures make helping the beleaguered domestic auto industry even more urgent and cautioned colleagues that doing nothing "would be a disaster."




Rep. Barney Frank, D-Mass., said "the country is held hostage" by the debate raging over how to help Detroit's Big Three automakers - and the prospect of congressional inaction.

Frank spoke during the second day of testimony from the automakers seeking a government bailout of up to $34 billion - and shortly after the government reported the biggest monthly job loss in 34 years.

Skeptical lawmakers are weighing whether to dole out as much as $34 billion in aid to the automakers as the once-mighty companies make their second round of pleas for government help to keep them from collapsing by year's end and potentially deepening the nation's already painful recession.

"For us to do nothing, to allow bankruptcies and failures in one or three of these companies in the midst of the worst credit crisis and the worst unemployment situation that we've had in 70 years would be a disaster," Frank said ahead of testimony to his House Financial Services Committee from the CEOs of General Motors Corp., Ford and Chrysler LLC.

Congress is considering a range of options, including a government-run oversight board. With several lawmakers in both parties pressing them to consider a pre-negotiated bankruptcy - something they have consistently shunned - members of Congress and the Big Three both were contemplating a government-run restructuring that would yield similar results, including massive downsizing and labor givebacks.

But no plan seems to be gaining much traction.

It is the second day of testimony for the auto chiefs, who tried to sell the Senate Banking Committee on Thursday on a new plan that would total $34 billion, up from the $25 billion they requested just two weeks ago.

"I don't want to send you home again because it's going to get more expensive," joked Democratic Rep. Gary Ackerman of New York.

He told the automakers they faced "the fury of the American public" and that was making it harder for Congress to reach a consensus.

Employers slashed 533,000 jobs in November, shooting the unemployment rate to 6.7 percent, the Labor Department reported Friday.

Separately, GM said it would lay off about 2,000 more factory workers early next year as the U.S. auto sales slump continues to wreak havoc.

The government would order a major restructuring of Detroit's struggling Big Three auto companies in exchange for a multibillion-dollar bailout under a plan circulating in Congress.

With several lawmakers in both parties pressing automakers to consider a pre-negotiated bankruptcy - something they have consistently shunned - members of Congress and the Big Three both were contemplating a government-run restructuring that would yield similar results, including massive downsizing and labor givebacks.

The rescue, though, was facing fresh obstacles in Congress, with lawmakers still unconvinced they should support yet another bailout and congressional officials saying a leading proposal for helping the carmakers wouldn't come close to covering the cost.

"We're looking at a death sentence" for the auto companies, Sen. Chris Dodd, D-Conn., the Senate Banking Committee chairman, said Thursday, pledging to try to help the Big Three. He quickly added, "I'm not a miracle worker and no one here is."

Finding the money was proving to be an uphill battle. Congressional budget analysts said one leading proposal - to use an already approved fund set aside for making cars environmentally efficient - would provide just $7.5 billion - a fraction of what General Motors Corp., Ford Motor Co. and Chrysler LLC say they need.

Chrysler President Jim Press on Friday suggested the market for the Big Three's cars could evaporate quickly without emergency aid.

"All this talk of bankruptcy has caused our customers and our suppliers to have a lack of confidence, we've got to restore that confidence," Press said on CBS' The Early Show. "By the first quarter, we could run into difficulty paying our bills."

Democratic congressional leaders are leaning on President George W. Bush to tap into the already enacted $700 billion Wall Street bailout fund to aid the auto industry, arguing that a carmaker collapse would have a devastating impact on the financial firms the program is designed to help.

The Bush administration has said it has no intention of doing so.

White House deputy press secretary Tony Fratto said that the $700 billion program, nicknamed TARP, was not intended for that purpose.

"Instead, they can’t get congressional support for their idea to use the TARP money, so they want us to do it instead. That's not leadership," Fratto said, reports CBS News White House correspondent Mark Knoller.

Auto state lawmakers are threatening to block the administration from accessing the second half of the financial rescue fund unless it comes to the aid of the Big Three.

And President-elect Barack Obama wasn't stepping forward with an alternative. Rep. Barney Frank, D-Mass., who has been dealing with both the financial bailout and the auto rescue proposal as chairman of the House Financial Services Committee, said Obama is "going to have to be more assertive than he's been."

Repentant after a botched first crack at bailout pleas, the companies' executives said they were willing to overhaul their companies and own up to past errors.

"We made mistakes, which we're learning from," GM chief Rick Wagoner said. Ford CEO Alan Mulally also acknowledged big missteps, saying his company's approach once was "If you build it, they will come."

"We produced more vehicles than our customers wanted, then slashed prices," he said. But as a result of these past mistakes, "we are really focused," he said.

United Auto Workers union President Ron Gettelfinger, aligned with the industry in pressing for the aid, told senators that any kind of bankruptcy, even a prepackaged one, was not "a viable option." Gettelfinger said consumers would not buy autos from bankrupt companies, no matter the terms of the arrangement.

He also warned that without action by Congress: "I believe we could lose General Motors by the end of this month." He said the situation was dire.

It wasn't enough for some skeptics.

"I don't know how they're going to make it," Sen. Richard C. Shelby, R-Ala., said of the auto makers.

Shelby said Chapter 11 bankruptcy was their way to stay in business. Asked Friday morning on CBS whether there was anything the auto executives could say to change his mind about government aid, Shelby said: "Absolutely not."