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  Big Three sent back to Detroit to devise workable aid package

21 November 2008

 

The US Big Three carmakers have effectively been given an ultimatum by federal politicians: come up by 2 December with a workable plan of how you might invest an aid package, and a deal may be on the cards.

Earlier this week, chief executives from Ford, General Motors and Chrysler travelled to Washington DC to present the case for aid to congressional committees, but the chances of a quick deal ended yesterday with no agreement.

The companies have now effectively been sent back to Detroit to come up with plans of how a $25 billion aid package would be spent, with the strong inference that they have to show that the money wouldn't just go on propping up present operations, but would be used to develop products and concepts that have better long-term prospects.

An earlier package that was mooted tied aid to the development of low-emission more-fuel-efficient vehicles. But that proposal fell by the wayside at the point when the urgency of the Big Three's cash needs became known.

The question of aid for the beleaguered threesome has split US politics. The Democrats, about to take charge of both the presidency and the congress, broadly support a limited package of state aid but with some strings; Republicans are looking for a tougher line. With federal government in the throes of the transition between the Bush and Obama camps, getting decisions out of Washington is not easy. Sending the Big Three back to Detroit to come up with a workable proposal is one way of buying time on a decision that no one seems to want to make.

Issues that need to be addressed include:

•How far any aid package should be tied to environmental developments

•Whether any aid package should come out of the $700 billion guaranteed to the US banking system, or be a separate fund

•Whether carmakers outside the Big Three who have North American plants would also qualify for federal aid.

•Whether aid should be contingent on a "rationalisation" of the three groups, probably through reviving the merger talks between GM and Chrysler, which are widely thought to be most at risk.