By John Crawley and Thomas Ferraro
WASHINGTON (Reuters) - Private ownership of Chrysler LLC, viability of carmakers and tailpipe pollution were chief issues the White House and Democrats moved to resolve on Tuesday to craft a $15 billion bailout of the auto industry.
Both sides said progress was being made to strike a deal and Democrats arranged to have the House of Representatives vote on an anticipated administration-backed bill as early as on Wednesday.
"A great deal of progress has been made ... that will protect the taxpayer and ensure that short-term financing is available only to companies prepared to undertake the dramatic restructuring necessary to become viable," White House spokeswoman Dana Perino said in a statement late in the day.
"We are genuinely moving closer," a Democratic leadership aide said. "Working to resolve remaining differences."
Among them was a White House demand for greater assurance that stricken U.S. automakers receiving short-term federal loans would make changes necessary to survive and compete.
The administration also opposed a Democratic bid to force automakers to drop lawsuits against California and other states seeking to cut auto emissions and other greenhouse gases.
According to Democratic aides, the White House also resisted a bid to hold Chrysler's owner, private equity group Cerberus Capital Management, liable for repayment if the auto company defaulted on any government loan.
"We want Cerberus on the hook," one aide said.
The proposed bailout is designed to allow General Motors Corp. and Chrysler to avert threatened bankruptcy through March with short-term loans. Ford Motor Co. has requested an emergency line of credit of up to $9 billion for use later if its finances worsen further.
Chrysler says it needs $4 billion in aid to run operations through the first quarter.
Sen. Charles Grassley, an Iowa Republican, questioned using taxpayer money to bailout out Chrysler, which was acquired last year by Cerberus.
In a letter to congressional leaders, Grassley suggested that Cerebus tap into its own resources to help its automaker without U.S. taxpayer aid.
CERBERUS RESPONDS
Cerberus replied in a statement that its investors include teachers, laborers and municipal employees who are no different than shareholders in GM and Ford.
Senate Minority leader Mitch McConnell, a Kentucky Republican, complained the initial Democrat draft "fails to assure taxpayers ... that they will not be asked to shell out billions more a few years or even a few months from now."
In addition to providing $15 billion in loans, the Democratic proposal would force automakers to answer to a presidentially appointed trustee, or "car czar" and make the government their biggest shareholder.
That official would have powers to shape a restructuring of the companies, withholding further loans if progress toward a turnaround stalled.
Democrats control Congress and are expected to push a bill through the House. But they may run into trouble in the 100-member Senate where Republicans could raise a roadblock that would take 60 votes to clear.
A top Republican aide, who earlier this week predicted passage of such a measure, voiced caution, saying a number of Republicans would want a chance to amend the bill.
"It's not going to be a slam dunk," the aide said. "Democrats are going to have to be careful about dropping a bill on us without allowing an amendment or two."
With President-elect Barack Obama having recently resigned from his Senate seat, Democrats hold the chamber 50-49. Democrats figure at least a few Democrats may oppose a bailout and they will need 12 to 15 Republicans to get the 60 votes to move toward passage of a bill, a senior aide said.
FEDERAL RELUCTANCE
An auto bailout has evoked competing emotions in Congress.
Lawmakers fear if automakers collapse, it would deepen the U.S. recession. But many say market forces, not a government saddled with a record deficit, should determine their fate.
There is also reluctance to provide another federal rescue in wake of the voter backlash against Congress for its passage of a $700 billion bailout for Wall Street in October.
At the same time, many argue that if Congress provided relief for millionaires in the U.S. financial industry, it should also help blue-collar autoworkers facing unemployment.
Automakers have had powerful friends in Congress over the years who have shielded them from adopting costly and stricter fuel efficiency standards.
But they also had critics who complained automakers were led by poor executives who stuck to producing gas-guzzling vehicles unable to compete with smaller, foreign-made ones.
A poll by CBS News conducted last week found Americans split on whether taxpayer funds should help automakers.
But more than 65 percent said in exchange for any aid, the government should have a say in the automakers' management and require more fuel-efficient cars.
The rescue plan would grant the government the right to acquire preferred shares, or the economic equivalent, equal to 20 percent of the amount loaned.
At GM, that could mean the government would end up with half of the equity in the top U.S. automaker before factoring in any new shares the company would issue as part of an effort to cut debt by $30 billion, analysts said.
Shares of GM and Ford rose more than 20 percent on Monday on prospects for a rescue deal but gave back some of those gains on Tuesday as they dropped about 4 1/2 percent.
(Additional reporting by Kevin Krolicki in Detroit; Tabassum Zakaria, Donna Smith and Richard Cowan in Washington; editing by David Alexander and Cynthia Osterman)
