The bailout package bill for General Motors Corp. (GM), Ford Motor Co. (F) or Chrysler LLC was passed by House lawmakers by a vote of 231-170. Democrats said they reached agreement with the White House on the details of the plan yesterday.

“If we do nothing, we take the risk that, sometime soon, there’ll be no American automobile industry,” House Majority Leader Steny Hoyer, D-Md., told MarketWatch.com.

The $14 billion is a long way from the $34 billion now being sought by the Big Three. And that $34 billion was well in excess of the $25 billion in loans the carmakers said they would need. Of the three companies, GM and Chrysler are in the greatest need of cash. Ford says it is seeking a long-term line of credit and doesn’t need money in the short term.

The House bill, if enacted, would do several things. It would:

• Grant the U.S. government warrants for nonvoting stock equal to 20% of the value of the loan it makes to each company.
• Create a White House-chosen “car czar,” an appointee empowered to hold the companies accountable for developing long-term viability plans. The czar would be able to require immediate repayment of the loans if the companies don’t make adequate progress by Feb. 15.
• Require GM, Ford and Chrysler to submit “final” restructuring plans by March 31.
• End such financial standard fare as dividends for shareholders and “golden parachutes” and bonuses for executives – in the interest of conserving cash.

House Speaker Nancy Pelosi, D-Calif., said the bill is “tough love” for the industry but offers the Big Three “a chance to get back on track.”

The Bush Administration said yesterday that the “car czar” would have the power to revoke the loans and develop a new plan – including one that would have the Big Three seek Chapter 11 bankruptcy protection if the carmakers don’t make progress toward long-term viability by March 31.

“If there’s not a plan that makes these firms viable, the government gets its money back,” Joel Kaplan, deputy White House chief of staff for policy, told reporters.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., unveiled a bill similar to the House measure late yesterday. A vote in the Senate may not come until the weekend, Senate Majority Leader Harry Reid, D-Nev., said yesterday. Congress has been working on this for several weeks.

Shares of GM closed at $4.60 each yesterday, down 2%. Ford shares advanced 2 cents, or 0.62%, to close at $3.25. Chrysler is privately held, with private-equity firm Cerberus Capital Management LP holding a controlling interest. Before Cerebrus bought it, Chrysler had spent years as part of Germany’s Daimler AG (DAI).

Throughout the day yesterday, House and Senate Republicans repeatedly said that a Big Three bailout wouldn’t lead to a long-term viability or competitiveness for GM, Ford and Chrysler. In fact, U.S. Sen. Richard Shelby, R-Ala., who is the ranking GOP player on the Senate Banking Committee, vowed to block the legislation with a filibuster.

“Unless Chrysler, Ford and General Motors become lean and innovative and competitive in the marketplace, this is only delaying their funeral,” Shelby told journalists yesterday.

Of course, as MarketWatch reported, Shelby’s home state of Alabama has provided millions of dollars in subsidies to attract Japan’s Honda Motor Co. Ltd. (ADR: HMC), South Korea’s Hyundai Motor Co. (PINK: HYMLF) and the Mercedes-Benz unit of Germany’s Daimler AG, to build plants that provided 48,457 jobs in 2007. The Toyota Motor Corp. (ADR: TM) factory in Huntsville, Ala., makes motors for SUVs and pickup trucks.

The Wall Street Journal reported that a breakthrough in the negotiations between the White House and Democrats came after Democrats agreed to scrap language that would have forced the carmakers to drop lawsuits challenging tough emissions limits in California and other states.

Reid told MarketWatch that that he needs 60 votes to get the plan through the Senate. A key Democrat, Finance Committee Chairman Sen. Max Baucus, D-Mon., actually came out against the bill, since it contains a tax provision he said that he opposes. Democrats control the Senate by a narrow 50-49 majority.

Dodd said the Senate bill is “a far cry from a blank check to the industry.”

Said Dodd: “The legislation requires these companies to make painful, fundamental changes if they are going to be competitive internationally and viable in the long term.”

Source: Auto Bailout Passes House, Faces Hostile Senate

The bill clearly falls short of the $34 billion the Big Three were asking for, but should be enough to keep the automakers running through January, when the new Congress and Obama administration take the wheel.

As previously reported in Money Morning, there will be limits on executive pay, prohibitions for golden parachutes and requirements that the automakers get rid of their corporate aircraft and not pay dividends while loans are outstanding. The bill also provides a “car czar,” or presidential appointee, to oversee keep tabs on the companies’ restructuring efforts.

Of course, the bill is still awaiting congressional approval and there is cause to believe it may stall in the Senate.

Sen. Richard Shelby, R-AL, was a member of the panel that twice grilled Big Three CEOs and one of the bailout’s most vocal critics. Yesterday (Wednesday), Shelby threatened to filibuster the deal if it reaches the Senate.

It’s interesting to note that Shelby’s home state of Alabama, has built three foreign car assembly plants – Honda Motor Corp. (ADR:HMC), Mercedes-Benz and Hyundai – as well as a Toyota Motor Corp. (ADR:TM) engine plant, in the past 20 years.

Shelby’s efforts induced the formation of Boycott Alabama Now, a group that says it wants America to give Shelby a taste of what he’s doing to America. Such a boycott “will include any travel into the state well as boycotting the purchase of anything produced in any way within the state,” according to the group’s Web site.

Senate Minority Leader Mitch McConnell expressed reservations about the bill’s legislation and doubts it’ll garner enough Senate votes to pass. The state he represents, Kentucky, has a 7,000 employee Toyota plant, The Boston Globe reported.

Then there’s Tennessee, the only state with U.S., Asian, and European auto assembly plants. And in an interview with BusinessWeek, Tennessee’s Sen. Bob Corker seems to understand his colleague Shelby’s positions on the bailout more so than his own.

“It has not been an issue of local politics. For me there is no issue of local politics. I try and dig into these issues and present thoughtful responses to the situation. In defense of Senator Shelby, I knew where he was going to be on this issue before this ever arose,” Corker said. “He was against the Chrysler loans back in 1979. He was always going to be against this, as he was against the Wall Street bailout legislation. In his case, it’s not the politics of the auto industry. That’s just who he is.”

But Corker nailed the source of problem.

“Regardless of what happens this week, the legislation, if passed, is not going to move people to buy cars,” Corker said.

Auto Woes Extend Beyond the Big Three

Falling demand is something all carmakers can agree on, especially in Germany, Europe’s largest economy and the home of Europe’s largest carmaker, Volkswagen.

While all focus has been on Detroit’s Big Three, few have noticed that Volkswagen – like Detroit’s Big Three – is trying to bite off its own piece of a broad government bailout. In October, Germany’s parliament passed a $642 billion (500 billion euro) bank-rescue plan to stabilize the country’s banks. And Volkswagen has quietly sought government help for its financial services and banking units.

Premium carmaker BMW said it wasn’t sure if it would ask for similar help, Reuters reported.

That’s why it’s not accurate to assume bailout opponents share the same opinions on the bailout as foreign automakers. As Money Morning previously reported, it’s more than just Big Three employees on the line.

While the Big Three employ more than 200,000 people directly, they support millions more indirectly through suppliers and dealerships. The collapse of the Big Three could ultimately cost the economy more than 2 million jobs total. And that doesn’t count the estimated 1 million Americans – including many retired autoworkers – who rely on the U.S. auto companies for pension and healthcare benefits.

According to Germany’s VDA industry group, parts purchased by manufacturers account for 75% of the value of an average car, Bloomberg reported.

Here in the United States, as many as 60% of Honda’s U.S. parts suppliers are also major parts sources for the Big Three.

If a manufacturer’s major customer goes under, it too may scale back operations and therefore be unable to meet the manufacturing and shipping demands of another customer.

“You can’t underestimate what would happen when a large player collapses,” BMW Chief Executive Officer Norbert Reithofer e-mailed to Bloomberg. “That would impact the supplier structure and therefore the entire industry.”

The United States is also the largest market for most foreign automakers. Allowing one or all of the Big Three to go under would add millions to the running unemployment numbers and deepen the recession, making the U.S. market less likely to buy their cars.

Source: Auto Bailout Awaits Congressional Approval with Millions of Jobs at Stake

The bloodletting continues.

On Friday the 15-nation Euro-zone announced that it is officially in a recession. GDP contracted by 0.2% for a second consecutive quarter over on the continent with Germany and Italy leading the way backwards. France narrowly escaped an “official” recession – two consecutive quarters of negative growth – by the narrowest of margins, posting 0.1% growth.

It has been 15 years since the last time Europe experienced such a large-scale downturn. Back then, of course, each country was able to act independently on monetary policy. Now they must seek permission from EU executive before rushing to save their own behinds. We wonder how the bureaucratic behemoth is taking the news and, more to the point, how it will react.

Socialist E.U. MPs were quick to satisfy our curiosity, outlining their solutions hours after the recession was announced in a report containing five helpful tips on how to deal with it. They read:

• Targeting measures to help on those who need it most and in particular small firms and vulnerable households. This will involve rapidly restoring levels of lending to households and businesses, especially SMEs
• A European ban on mega-bonuses and golden parachutes;
• Refusal of compulsory redundancies
• Implementation of a European Green Investment package to boost the economy, avoid a long-lasting recession and help Europe to meets its climate and energy goals
• Revival of the Doha world trade talks to reach successful, development-friendly conclusions.

Let’s see here… We’ve got a promise of more talking, an increase in needs-based lending, protectionism in the job market, oversight on private compensation and a twist of environ-socialism, just to keep the voters happy. We’ll be interested to see how that turns out for them.

Meanwhile in capitalist Japan, the world’s second largest economy is losing fluids quicker than like a hemophiliac in a samurai fight. It too announced this morning that the long gray cloud of recession hangs over its islands. Growth there slowed 0.1% during the past three months, on top of a 0.9% slump the previous quarter.

It seems recession known’s no party lines.

Here in the Middle East, where the political process has scarcely evolved beyond medieval feudalism, markets continue their relentless slide, wiping out billions of investor dollars and bringing the much-lauded real estate sector to its knees.

Since July 1, Dubai’s real estate index has shed a stunning 75%. Emaar, the largest developer in the region, has fallen more than 57% in the past seven trading days alone! When even the king’s newspapers start using words like “battered” and “thrashed,” you know you’re in trouble.

Preposterous as it may seem, the expectations of kings, prime ministers, dictators and the Joe the Plumbers of the world now rest on the shoulders of one man.

Source: Recession Runs Rampant