Some perspective on the auto bailout

The $14 billion in aid that Congress rejected for the Big Three automakers is less than the amount of new capital the Treasury Department provided to four banks with heavy concentrations of business in vehicle and parts producing states.

The Treasury Department bought $7.7 billion of preferred stock in PNC Financial Group Inc. , of Pittsburgh, which in turn agreed to absorb National City Corp., an Ohio bank that was considered too weak to qualify for taxpayer investment.

The Treasury Department also invested $3.4 billion in Fifth Third Bancorp, of Cincinnati, $2.5 billion in Keycorp, of Cleveland, and $2.25 billion in Comerica Inc., which has headquarters in Dallas but previously called Detroit home.

That money, a total of  $15.85 billion, came in the form of direct capital investment rather than loans, as the automakers are seeking. And it came with very few conditions, other than reduced tax deductions for executive compensation, restrictions on "golden parachute'' payments for departing executives and limits on dividend increases and stock buybacks.

Republicans in the Senate said they rejected the $14 billion loan package for the Big Three because the United Auto Workers refused to go along with a provision that would have substantially reduced wages and benefits beginning next year.

The Bush administration said Friday that it would consider tapping some of the $700 billion allocated by Congress for the Troubled Asset Relief Program to help keep the automakers solvent and avert a domino effect of supplier bankruptcies.

Chrysler LLC and General Motors Corp. say they are running low on cash and need more than $10 billion by the end of the year to pay suppliers for parts and to cover other expenses. Ford says it has enough cash to make it through 2009.

Michigan ranks first in the nation in auto assembly and parts employment, with 202,410 jobs, according to an analysis by CNNMoney.com. Ohio is second, with 111,218 jobs, followed by Indiana, with 84,025. It's a safe bet that many of the customers of the auto-state banks getting TARP money are employed in the auto industry or rely on it in some way. If their jobs are threatened by the industry's turmoil, then the financial strength of the banks could be threatened, too, along with the taxpayer investment in them.

The language in the bill that created the Troubled Asset Relief Program does not specifically mention automakers among the types of companies eligible for taxpayer aid. But the legislation gives Treasury Secretary Henry M. Paulson Jr. broad leeway in determining how best to use the money, and which companies get it.

Paulson is the former chairman and chief executive officer of Goldman Sachs Group Inc., which was one of the investment banks that provided financing for Cerberus Capital management LP's purchase of 80 percent of Chrysler in 2007. Paulson had left Goldman Sachs for the Treasury Department the previous year. And Goldman Sachs has reduced its exposure on the Chrysler deal, selling at least half of its $1.6 billion in debt securities.

Goldman Sachs got $10 billion in government investment through the TARP program. Three other banks that were big recipients of taxpayer capital through TARP also provided big chunks of the $7 billion in financing that Cerberus used to buy Chrysler.

Those banks -- Citigroup Inc., J.P. Morgan Chase & Co., and Morgan Stanley -- sold a total of $60 billion of their preferred stock to the government. It is not clear how much Chrysler related debt they still hold. 

Congress authorized the first $350 billion of the TARP money in October. The Treasury Department has already parceled out most of that money. The bulk of it, $250 billion, is going to buy preferred stock in banks. Another $40 billion went toward an emergency rescue plan for American International Group Inc. 

The Treasury Department had to come up with an additional $20 billion in November to help shore up Citigroup, on top of the $25 billion the bank already received through the stock purchase program. In addition, Paulson committed $20 billion of the TARP money for a program designed to revive the market for securities backed by consumer loans.