Wednesday December 3, 06:22 AM
TOPWRAP 1-Hopes of US carmaker bailout remain as crisis stings
* Paulson mulls asking Congress for rest of bailout cash-WSJ
* China sovereign fund balks at buying more stakes in banks
* Auto makers begin to detail turnaround plans
(For full coverage of the financial
crisis)
By Burton Frierson
NEW YORK, Dec 3 (Reuters) The automobile industry, ravaged by financial crisis, hoped Washington would still rescue it, as the U.S. Treasury's Hank Paulson was reportedly debating if he should ask potentially hostile lawmakers for the $350 billion more in bailout cash.
Paulson is concerned about competing demands for the second installment in the $700 billion bank rescue package, and if he does approach Congress, it will be next week, the Wall Street Journal reported on Wednesday.
He was on his way to Beijing to kick off the fifth round of talks with Chinese officials initiated in 2006. However, Paulson may not receive big promises of further investment, especially from China's sovereign wealth fund, which expressed a lack of confidence in the U.S. regulatory situation.
Beijing has been busy protecting its own rapidly slowing economy from a worldwide manufacturing and consumer spending slump that have sucked Britain, Europe, Japan and the United States all into recessions.
Thailand, suffering the economic damage wrought by a week of political protests, will likely see its central bank cut rates later on Wednesday. Britain, the euro zone and New Zealand will almost certainly slash rates as well this week.
With its benchmark rate effectively near zero, the Federal Reserve was considering other, more targeted measures to prop up the financial system.
Two top Fed officials on Tuesday downplayed the threat of deflation but said the central bank ought to set up explicit inflation targets to keep the threat at bay.
Meanwhile, U.S. automakers began submitting plans to Congress as they tried to show they have a viable future. Ford Motor Co led off with a request for a $9 billion credit line and promised big changes ahead of the government review.
General Motors Corp (NYSE: GM - news) asked the U.S. government to save it from failure by extending $12 billion in loans and another $6 billion in a credit line.
While critics have charged that many of the problems plaguing Detroit's Big Three are of their own doing, politicians worry that without government aid, the companies could collapse and millions of jobs would be lost.
'The greater the delay in help, the more damaged the industry becomes,' Michigan Gov. Jennifer Granholm said in an interview with Reuters.
'Because Congress has not acted, even if nobody has declared bankruptcy, nobody is in the showrooms of this industry because they don't know whether Congress is going to act,' she added.
GM, Ford and Chrysler failed two weeks ago to obtain a $25 billion bailout from lawmakers unconvinced that taxpayer money would be well spent considering the industry's horrible financial prospects.
The global car industry has been reeling from flagging demand and evaporating consumer credit, forcing automakers to slash production to cut swelling inventories.
South Korea's top two car markers, Hyundai (011760.KS - news) and Kia, said they have been cutting production abroad because of falling sales. That followed news from Japan's No. 2 automaker Honda Motor Co (Stuttgart: 853226 - news) , which said it was scaling back overseas expansion plans.
LACK OF CONFIDENCE
With a growing list of major developed economies falling into recessions, investors have looked to China for leadership because of its high growth rate and long-term economic potential.
However, the message from China Investment Corp, the sovereign wealth fund that has incurred steep paper losses on its stakes in U.S. financial firms, was clearly it would worry about its own backyard first.
The fund's chairman said it is 'not brave enough' to invest in foreign financial firms and lacks confidence in the shifting U.S. financial regulatory situation.
'It's changing every week. How can I be confident?,' Lou Jiwei, chairman of CIC (Paris: FR0005025004 - news) , said during the Clinton Global Initiative event in Hong Kong, referring to U.S. government efforts to rescue the devastated financial services sector.
The same could perhaps said about the financial sector in Europe, however. The European Commission promised measures to prompt state-aided banks to start lending, but EU finance ministers squabbled over plans to counter the downturn.
U.S. auto sales fell for the 13th consecutive month in November, led by a 41 percent drop at General Motors Corp, and major automakers said there was no sign that demand would rebound in the next six months in the world's largest vehicle market.
Industrywide auto sales in November were down about 35 percent to a seasonally adjusted annual sales rate of around 10.5 million, the lowest in over two decades, automakers said.
(Reporting by Reuters bureaus worldwide) ((Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com * BridgeStation: view story .134 For more information on Top News: http://topnews.reuters.com) Keywords: FINANCIAL/
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