Nov. 8 (Bloomberg) -- Democratic congressional leaders urged Treasury Secretary Henry Paulson to use the $700 billion rescue bill passed last month to provide temporary aid to the U.S. auto industry.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent a letter to Paulson today saying the rescue bill gives him ``broad discretion to purchase, or make commitments to purchase, financial instruments you determine necessary to restore financial-market stability.''

Pelosi was among the lawmakers who met two days ago with the chief executives of General Motors Corp., Ford Motor Co. and Chrysler LLC. The three companies are seeking $50 billion in federal loans to help them weather the worst auto market in 25 years, according to a person familiar with the matter.

The letter increases pressure on the administration of George W. Bush to take action as he prepares to hand power to president-elect Barack Obama on Jan. 20. Obama said yesterday that policy options to help the industry will be a ``high priority'' for his transition team.

``A healthy automobile manufacturing sector is essential to the restoration of financial market stability, the overall health of our economy, and the livelihood of the automobile sector's workforce,'' Pelosi and Reid said in their letter.

They argued that the auto industry may qualify for federal financing under the $700 billion Troubled Asset Relief Program. Paulson has set aside $250 billion to purchase equity stakes in U.S. financial companies.

``We continue to work on a strategy that most effectively deploys the remaining TARP funds to strengthen the financial system and get lending going again,'' Treasury spokeswoman Brookly McLaughlin said today in response to the lawmakers' letter.

`Significantly Short'

Time for a solution may be running out. General Motors yesterday said it may not have enough cash to keep operating this year and will fall ``significantly short'' of the amount needed by the end of June unless the auto market improves or it raises more capital.

The largest U.S. automaker reported a $4.2 billion third- quarter operating loss and said its available cash fell to $16.2 billion on Sept. 30 from $21 billion at the end of June. Merger talks with Chrysler LLC were suspended.

The top three automakers suffered a combined $28.6 billion in first-half losses. New vehicles sold at a seasonally adjusted annual rate of 10.6 million in October, the lowest since 1983.

Car sales plunged 18 percent last quarter and 32 percent last month while manufacturing contracted the most in 26 years. Consumer confidence fell to a record low and the unemployment rate surged to 6.5 percent, its highest in 14 years.

In Touch With Obama

General Motors Chief Executive Officer Rick Wagoner, Ford's Alan Mulally and Chrysler's Robert Nardelli met with U.S. House and Senate leaders in Washington on Nov. 6. Wagoner said GM also has been in contact with Obama's staff.

GM's cash forecast was the bleakest yet from the company, which has lost almost $73 billion since the end of 2004. Using $6.9 billion in cash last quarter pushed GM closer to the $11 billion minimum it says is needed to pay bills.

Should GM file for bankruptcy protection, the result would be 2.5 million jobs lost 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.

If Paulson extends financing to the industry, Reid, of Nevada, and California's Pelosi asked him to take equity stakes in the companies and limit executive compensation.

``We would urge you to impose strong conditions on such assistance in order to protect taxpayers and maximize the potential for the industry's recovery,'' they said.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.

Last Updated: November 8, 2008 16:59 EST