WASHINGTON (Reuters) - The Bush administration is weighing the option of a managed bankruptcy in the U.S. auto industry as it works out an aid package that is close to being finalized, the White House said on Thursday.
President George W. Bush said in an interview with the American Enterprise Institute that he was worried about the impact a "disorderly bankruptcy" might have on financial markets and whether or not U.S. automakers can become viable.
White House spokeswoman Dana Perino also said the deliberations on aid for the troubled carmakers are taking into account a startling decision on Wednesday by Chrysler LLC to close its factories for a month and idle 46,000 workers beginning on Friday.
"They're in a very fragile state right now," Perino told reporters.
Chrysler is considered the weakest of the "Detroit Three" manufacturers and has said it needs billions in government loans now to avert near-term collapse.
General Motors Corp, is also seeking immediate intervention to survive. Ford Motor Co says it has enough cash for now, but is seeking a line of credit in case its finances worsen unexpectedly.
Ford, however, supports the appeals by its rivals, fearing the failure of one or both would severely undercut its finances or drag it down, too, since the industry's supplier, dealer and other business networks are interconnected.
The common threads have prompted White House and Treasury Department officials to move carefully this week through what they have called a range of options for Detroit.
The Bush administration, which hands over to President-elect Barack Obama on January 20, has been considering an assistance package since last Thursday when Congress failed to reach agreement on a bailout proposal.
Automakers consistently have ruled out bankruptcy, saying it would take too long and drive consumers away from their products since new car purchases would come with too much uncertainty about warranties and other ownership concerns.
"SOFT LANDING"
But the administration is at least contemplating a possible court restructuring as it factors which companies should receive money.
"There's an orderly way to do bankruptcies that provides for more of a soft landing -- I think that's what we would be talking about. That would be one of the options. I'm not saying that that is necessarily what would be announced," Perino said.
"I'd say it's in the spectrum of options, and there are a lot of options," she said of a possible managed, or prepackaged bankruptcy.
Bush, a Republican, warned a week ago of the impact of an auto industry collapse on the rest of the recession-hit U.S. economy.
The White House negotiated a bill with Democrats in Congress last week that would have provided up to $14 billion in immediate bridge loans for the carmakers.
The legislation included conditions to protect taxpayers, ensure repayment and guarantee oversight.
But the plan failed when Senate Republicans sought to negotiate tougher terms, including one provision that would allow the government to force bankruptcy, if necessary.
A Moody's Investors Service report earlier this week said government aid paired with prepackaged bankruptcy was the industry's most likely restructuring scenario.
In a prepackaged approach, concessions and financing are arranged before a court filing to accelerate and simplify restructuring.
Chrysler's chief executive, Bob Nardelli, said last month the company needed an alliance and federal financing to survive.
(Reporting by Matt Spetalnick and Jeremy Pelofsky; Writing by John Crawley; Editing by Frances Kerry)