Auto Industry Bailout Battle Brewing on Hill

President-elect Barack Obama and his Democratic allies on Capitol Hill are gettng set for a lame duck battle with House and Senate Republicans and the Bush Administration over a proposed $25 billion bailout of the American auto industry. Democrats and Obama want to extend a second bailout, on top of $25 billion in loans already authorized earlier this year, to the troubled automakers in hopes of preventing the collapse of one or more of Detroit's big three. Republicans are convened by the rapid increase of federal spending, even before Obama and the new Congress take charge in Washington, and are using the issue as a rallying point after disastrous election results two weeks ago.

The money for the auto industry would come out of the $700 billion financial rescue package, which was originally intended to buy up bad mortgage debt from the big investment firms. Secretary of the Treasury Henry Paulson recently announced that the federal government will instead use the money in direct aid to homeowners at risk of foreclosure. Congressional Democrats see the auto industry problems as in need of more urgent action. Obama has said that he thought the situation in Detroit should be addressed quickly, but whatever action Congress takes should not amount to a "blank check."

Republicans and the Administration have no intention of giving Democrats what would amount to a blank check for the auto unions, a key Democratic constituency group. The White House has said that it will support the second auto industry bailout only in exchange for passage of the Colombia Free Trade Agreement. Democrats object that the Republican stance amounts to political blackmail. But the political reality is that Democrats will not be able to enact their agenda until January. If Obama and Democratic leaders in Congress want bi-partisan cover for their proposals before then, they will have to play ball.