Nov. 10 (Bloomberg) -- U.S. automakers, burning through cash because of tumbling sales, are moving closer to a federal aid package to prevent them from collapsing as politicians rally behind the idea of a bailout.

President-elect Barack Obama's chief of staff, Rahm Emanuel, called the industry an ``essential'' part of the U.S. economy yesterday, a day after the top House and Senate leaders said the $700 billion bank-rescue plan could be tapped to help the companies. Emanuel stopped short of endorsing that idea.

Backing from the new administration and Congress improves the prospects for financial assistance to stem a crisis that threatens to topple General Motors Corp., though the size and timing of any aid plan aren't set. GM plunged 23 percent after Deutsche Bank AG said the shares were worthless.

``The powers that be will ultimately provide the funding that the industry needs,'' said Dennis Virag, president of Automotive Consulting Group Inc in Ann Arbor, Michigan. ``A complete erosion in the automotive base would be catastrophic.''

President George W. Bush's administration ``would listen'' to lawmakers should Congress decide to try to pass a new aid package for U.S. automakers, a White House spokeswoman, Dana Perino, said today.

U.S. auto sales plunged in October for a 12th straight month, the longest streak in 17 years, overwhelming efforts by GM, Ford Motor Co. and Chrysler LLC to cut costs by trimming payrolls and shutting factories.

GM Plummets

GM declined $1 to $3.36 at 4:15 p.m. in New York Stock Exchange composite trading as a Deutsche Bank analyst, Rod Lache, put a price target of zero on the shares and advised selling them. Ford fell 9 cents, or 4.5 percent, to $1.93.

The automakers are seeking access to $50 billion in borrowing, with half going for operating assistance and the rest to support spending on health-care costs, a person familiar with the plan said. In exchange, the companies would be willing to take steps such as granting stock warrants, the person said.

The aid request took on more urgency when Detroit-based GM said on Nov. 7 it will be ``significantly short'' of its cash needs by mid-2009. GM said it used $6.9 billion in cash last quarter, and Ford used $7.7 billion, though the Dearborn, Michigan-based automaker said it has ``sufficient liquidity.''

Pressure on Paulson

A day after those disclosures, House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada wrote Treasury Secretary Henry Paulson to urge that the bank- bailout funds be opened up for loans to automakers.

A Treasury spokeswoman, Brookly McLaughlin, declined to comment today, and Perino signaled that the White House is unwilling to support using the financial-system rescue money for the auto companies.

Congress' intent with the bailout bill ``was to help financial institutions,'' Perino said. ``There was not discussion of specific help to auto companies.''

While Emanuel didn't directly respond to the Democratic leaders' proposal in an interview yesterday on ABC's ``This Week,'' lawmakers including Representative James Clyburn of South Carolina backed the idea.

Paulson should take ``a hard look'' at helping the auto industry and has the authority to ``move quickly,'' Clyburn, the third-ranking Democrat in the House, said on NBC's ``Meet the Press.''

``The United States must have an auto industry,'' Senator Mel Martinez, a Florida Republican, said on the same program. ``We don't want to see a loss of over a million jobs.''

Lost Jobs

A GM bankruptcy would cost 2.5 million jobs in the first year among automakers, suppliers and related businesses, according to a Nov. 4 report by the Center for Automotive Research, based in Ann Arbor, Michigan.

``We will continue to urge Congress and the Bush administration to immediately address the liquidity crisis facing the automotive industry,'' Shawn Morgan, a Chrysler spokeswoman, said yesterday in a statement.

Ford welcomes the expressions of support by Obama, Pelosi and Reid ``given these unprecedented challenges,'' said Mike Moran, the automaker's Washington spokesman. GM's Washington spokesman, Greg Martin, didn't return a message seeking comment.

GM is asking dealers to petition Congress for aid, saying the credit crisis is blocking access to needed loans. GM offered a proposed letter on its Web site, suggesting dealers say that ``helping our industry in the short term will have a much lower cost than addressing the effects of a failed industry in the midst of an economic turnaround.''

Congress Returns

Congress's final session of the year, starting Nov. 17, may offer the auto industry's legislative allies a chance to attach loans for the companies to the new economic stimulus package being pushed by Obama.

Emanuel also said lawmakers should speed automakers' access to $25 billion in loans approved in September for retooling plants, a program for which the Energy Department completed rules last week.

Still, because companies must prove they're ``financially viable'' to access the cash, GM in particular may face difficulty, said Brian Johnson, a Barclays Capital analyst in Chicago. He made that comment in a note to investors on Nov. 6, a day before GM said it was running out of money.

To contact the reporters on this story: Mike Ramsey in Southfield, Michigan at mramsey6@bloomberg.net; Todd Shields in Washington at tshields3@bloomberg.net

Last Updated: November 10, 2008 16:34 EST