Another Bailout Blowout? Why the Auto Deal May Crash

For the shaky fortunes of the ailing U.S. auto industry, appearances could hardly have been more deceiving than they were Wednesday on Capitol Hill. Late in the day, the House of Representatives passed by a wide margin of 237-170 a bill to give General Motors and Chrysler $14 billion in emergency loans from a green modernization fund that Congress created earlier this year. (Ford is in better shape and has not asked for short-term emergency assistance.) But behind the scenes, things looked pretty dire for the Big Three's hopes of a rescue.

Instead of coming together to craft a plan to stave off bankruptcy, the parties in both chambers and on each end of Pennsylvania Avenue spent the day moving further apart. Even as Senate Dems and the White House met to fashion a workable compromise, Senate Republicans made clear that they weren't on board with President Bush — and that they were none too happy he was putting them in this uncomfortable position. To complicate matters, House Dems moved more to the left in their environmental demands for the plan, a luxury Speaker Nancy Pelosi could afford since her large majority allows her to pass legislation over Republican objections. Senate majority leader Harry Reid's razor-thin majority does not, and now Washington seems once again on the verge of a bailout blowup that could shake the markets and the economy.

After the vote, the House adjourned, with aides saying that House members will return next week if the Senate can come to an agreement. But such an accord will not come easy. In fact, the House bill was pronounced DOA in the Senate six hours before the House even voted on it. Senate Republicans are balking at a deal they claim does not go far enough in demanding that General Motors, Ford and Chrysler prove they have viable long-term business plans before qualifying for a second round of loans in March. All told, the Big Three have asked for $34 billion in bridge loans, though many economists say it will take up to $200 billion to really reinvent Detroit; negotiators have agreed to grant $14 billion to keep them afloat through March, but the companies must jump through significant hurdles in order to qualify for more federal aid after that. (Read TIME's biographies of the Big Three CEOs.)

Reid and Republican minority leader Mitch McConnell both warned that talks may go through the weekend to reach a new agreement. One plan to ease final passage would be to allow two substitute bills, one Democratic and one Republican — cosmetic votes that would fail from the get-go but would give senators the chance to vote for certain provisions near and dear to their hearts that are not in the compromise package. Democrats, scrambling late Wednesday to find a way to get a bill passed, were also considering allowing votes on amendments. "We're trying to see if there's any flexibility out there," a top Democratic aide said of the search to scrounge enough votes. (See the 50 worst cars of all time.)

In the famously deliberative body, where the filibuster power ensures that it takes approximately 60 votes to get just about anything done, the Democrats' majority of 50 means they must lure at least 10 Republicans across the aisle on most bills. This hurdle is even steeper in the current lame-duck Congress, given Barack Obama's resignation and the pending exits of both Joe Biden and Hillary Clinton (though sources say that in extreme circumstances, Biden and Clinton might consider returning for a vote). Add to that some Democratic defections, such as Montana Senator Max Baucus, who has declared his opposition to the bailout, and Democratic aides say they'll need at least 15 Republicans on board to get a bill passed.

By the end of the day it seemed hard to envision a solution. In an eerie replay of the events that led to the initial Wall Street bailout flop, congressional Democrats got the White House's blessing on a bill only to discover (yet again) that the outgoing President doesn't carry much weight on Capitol Hill. "The White House does not vote in the Senate," said one Senate GOP aide. "It's offensive to many congressional Republicans that they'd choose working with a lame duck than with their colleagues." (Many Democrats counter that the door was always open to the Republican Senators — but that they simply chose not to come to the table.)

Yet again, the Administration's emissaries had little success swaying Senators' views. Senate Republicans Wednesday staged a mini revolt at a 90-min. luncheon with White House chief of staff Josh Bolten and Vice President Dick Cheney. The GOP leaders emerged from the lunch only to acknowledge that they were far from having the necessary votes. Not only are many strongly opposed to a plan they believe will only postpone the inevitable bankruptcy of GM and Chrysler, they feel that the President has a much easier alternative that would provide them political cover; allow the money instead to be taken from the Wall Street bailout funds without a vote, as Democrats had previously pushed for but the Administration has steadfastly resisted.

"The best way to describe the discussion is 'spirited,' " McConnell told reporters outside the Senate chamber, adding in an e-mailed statement, "On a bill this critical, with so much taxpayer money at stake, we cannot rush this through without adequate review."

Many Democrats are frustrated, feeling as though they have already given in on many major points to the GOP. Pelosi, for her part, was dead set against using the green fund for bridge loans, with her aides arguing that it forced the companies to choose between their present and their future. Having conceded that point, the Speaker was rankled that the Senate version requires the Big Three to meet only federal fuel-efficiency standards and not stricter regulations like those in her native California. Her bill requires the Big Three to meet all "applicable" standards, which would include state ones — a provision the White House has threatened to veto.

Dems also agreed to scale back the sweeping powers once envisioned for the so-called car czar created by the bill to help oversee the companies' restructurings. But while some conservative House Republicans decried the very idea of such a bureaucratic watchdog, certain Senate Republicans want to further empower the official to force tougher viability plans from the automakers. Given that such clashing views are coming from within the Republican Party ranks, it's no wonder that Detroit is bracing for what could be a very gloomy New Year.

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See pictures of the remains of Detroit.