Dec. 7 (Bloomberg) -- U.S. lawmakers worked to hammer out details of legislation to bail out ailing auto companies that could be presented to Congress as early as tomorrow, after reaching an agreement in principle with the Bush administration.

The legislation is taking shape after House Speaker Nancy Pelosi dropped her opposition to drawing on $25 billion in funds from the Energy Department intended to help automakers develop more fuel-efficient vehicles, according to a Democratic aide who declined to be identified.

The chief executives of General Motors Corp. and Chrysler LLC testified at hearings this week that they need a combined $14 billion to keep operating through March 31. To qualify for aid, automakers must be prepared to make “difficult decisions” to ensure their long-term viability, Dana Perino, the White House spokeswoman, said in a statement yesterday.

The Bush administration has held “constructive discussions” with members of Congress, Perino said. “We hope to continue to make progress toward assistance for the automakers” provided public money can be safeguarded.

“Taxpayers should not be asked to finance assistance for automakers without a strong likelihood that they will be paid back,” Perino said.

A draft proposal from the White House calls for the appointment of a “financial viability adviser” in the Department of Commerce to work out terms of assistance to auto companies. The adviser would be authorized to provide short-term loans to keep car makers afloat during talks.

McConnell

Senate Minority Leader Mitch McConnell, a Kentucky Republican, said yesterday in a statement: “I look forward to reviewing the legislation being drafted to address the difficulties in our auto markets. As we consider this legislation, our first priority must be to protect the hard- earned money of the American taxpayer.”

Democratic leaders in Congress and the Bush administration have been at odds for weeks over the source of money to help the industry.

Pelosi, a California Democrat, had demanded that the Bush administration tap a $700 billion bailout fund for the financial industry. President George W. Bush and congressional Republicans refused, saying the money must come from the $25 billion in Energy Department funds.

The breakthrough came when Pelosi said the Energy Department funds could be used to keep the automakers operating, provided the money would be “replenished in a matter of weeks.”

Limits on Compensation

The White House proposal calls for “strong taxpayer protections” for agreements on longer-term financing for auto companies. These include options for ownership stakes for the government, limits on compensation of senior executives and a suspension of dividends.

Senator Bob Corker, a Republican from Tennessee and a member of the Senate Banking, Housing, and Urban Affairs Committee, yesterday said he was disappointed with the draft of the plan being worked on between House Democrats and the White House.

“Based on the outline we’ve seen so far, we are disappointed,” Corker said in a statement. Corker proposes including conditions for bondholders and for the auto unions and asks for wage parity with automakers like Nissan.

‘Limited Assistance’

Pelosi said she expects to bring legislation to the floor next week to provide “short-term and limited assistance” to the industry. She said there would be strict oversight on the use of the funds. The House plans to return to work Dec. 9 and the Senate reconvenes tomorrow.

Pelosi spoke directly with White House Chief of Staff Josh Bolten two days ago in an effort to resolve the issue, the Democratic aide said.

The support of the White House is crucial since it removes the threat of a veto and will likely persuade many Senate Republicans to end their opposition. Some senators had argued that the companies should survive or fail on their own.

Senator Richard Shelby, an Alabama Republican, said aiding the companies would be like “throwing money down the drain,” because U.S. automakers have proven they can’t compete in the marketplace.

Senate Majority Leader Harry Reid, a Nevada Democrat, said Congress must prevent the auto industry’s collapse or “risk adding millions more Americans to the unemployment line.”

The Labor Department reported that last month’s job cuts brought the losses so far this year to 1.91 million. The unemployment rate rose to 6.7 percent, the highest level since 1993.

Cash Running Out

GM’s Chief Executive Rick Wagoner, Chrysler’s Robert Nardelli and Ford Motor Co. CEO Alan Mulally told lawmakers during two days of testimony this week that they wanted federal aid. Wagoner said GM needs $10 billion and Chrysler seeks $4 billion to keep from running out of cash by early next year.

The agreement in principle is “a good beginning,” said Representative John Dingell, a Michigan Democrat.

House Financial Services Chairman Barney Frank said he aims for legislation to keep the companies operating until March and include “mechanisms” to restructure the companies and the kinds of cars they produce.

To contact the reporters on this story: John Hughes in Washington at Jhughes5@bloomberg.net; Laura Litvan in Washington at llitvan@bloomberg.net.

Last Updated: December 7, 2008 00:01 EST