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Democrats prepared to push ahead with aid to automakers

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  • NEW: Taxpayers would get stake in automakers in exchange for loans, aide says
  • Democratic lawmakers want administration to use bailout funds to help automakers
  • Republican leaders, White House have not signed on to deal
  • Treasury Secretary Henry Paulson suggests other programs could help auto industry
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WASHINGTON (CNN) -- The likelihood of a showdown over aid to ailing automakers increased Wednesday after the administration's economic point man suggested that he would not use the current bailout program to help the industry.

Treasury Secretary Henry Paulson updates the press on the status of the financial bailout program.

Treasury Secretary Henry Paulson updates the press on the status of the financial bailout program.

Congressional Democrats want the Treasury Department to carve out $25 billion in loans for troubled automakers from the $700 billion bailout package originally passed to help the financial industry, which is reeling from the global credit crisis.

But the White House and congressional Republicans have not signed on to support such a move, and Treasury Secretary Henry Paulson suggested Wednesday that the bailout plan -- dubbed the Troubled Asset Relief Program -- may not be the best way to help the troubled automakers.

"We care about our auto industry in the U.S. They're a key part of our manufacturing industry. Manufacturing is critical. ... We need a solution," Paulson said. "But the solution has got to be one that leads to viability, and ... the intent of the TARP was to deal with the financial industry."

A Democratic leadership aide said Wednesday that Paulson's comments increased the chances that congressional leaders would call lawmakers back to Washington next week to pass legislation that would designate $25 billion of the bailout package for aid to automakers.

Rep. Barney Frank, chairman of the House Financial Services Committee, is drafting the legislation, the aide said.

According to a senior House Democratic aide, the new bill will include a provision that would give taxpayers an investment stake.

"We will have equity in the auto companies," the aide said.

The $25 billion in loans from the relief program would be on top of $25 billion in loans that Congress had approved for the automakers, bring the total amount of the loans available to $50 billion.

Disagreement over how to help automakers could result in a confrontation between congressional Democrats and the Bush administration just as Bush is preparing to leave office. Video Watch a panel debate the merits of a bailout »

President-elect Barack Obama voiced support for government aid to the automakers during his meeting with Bush on Monday. The controversy could pull him into the center of the political fray even before he formally takes the reins.

White House spokesman Tony Fratto reacted skeptically to the proposal by House Speaker Nancy Pelosi.

"We'll have to see what Speaker Pelosi is proposing. There are no details, so there's nothing to react to," Fratto said in a statement Tuesday. "If Congress wants to change the law, we'll see how they intend to do it. Of course, it's strange that congressional Democrats would choose to ignore the $25 billion program they actually created to assist the automakers; that would be a better place to start."

Advocates for the automakers argue that the government must act now if it is to save the domestic auto industry, as the Big Three automakers -- General Motors, Ford and DaimlerChrysler -- continue to report bad news.

On Tuesday, General Motors stock continued to slide downward, reaching $2.92 a share, its lowest close since April 1943. The company has also laid off 5,600 employees in less than a week.

And last week Ford announced that it has lost $3 billion in the third quarter and was also planning to reduce its salaried and hourly work force.

Rep. Sander Levin, D-Michigan, argued that the government cannot wait until Obama takes office to shore up the industry, noting that a failure of the automobile industry would "ricochet" throughout the economy.

"There's an urgency here, and it can't wait for an Obama administration," Levin said. "The president-elect has said that the auto industry is the backbone of manufacturing in this country, and we have to make sure that backbone isn't splintered in the next couple of months, before there is a new administration."

But the White House and congressional Republicans have expressed doubts about the government throwing a lifeline to the auto industry.

"Automakers today, airlines tomorrow. Where do you stop?" a Senate Republican leadership aide asked.


When asked whether President Bush was willing to leave office with the auto industry near collapse, White House spokeswoman Dana Perino said the president could not be blamed for the industry's problems.

"People can blame the president of the United States for a lot of things, a lot of things that land on his desk -- but the state of the automakers right now is not the president of the United States' fault," she said. "And so I would encourage the media to go back and look at the history of these companies, decisions they've made over time, that got them to where we are today."

CNN's Scott J. Anderson, Deirdre Walsh, Ed Henry, Candy Crowley and Jessica Yellin contributed to this report.

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