Dec. 4 (Bloomberg) -- House Speaker Nancy Pelosi and President George W. Bush are engaged in a showdown over who will bail out the U.S. automakers and where the money will come from.

Pelosi and Bush agree General Motors Corp. and Chrysler LLC shouldn’t be allowed to go bankrupt. Pelosi wants to rescue the car companies by tapping a $700 billion bailout fund for the financial industry. Bush and congressional Republicans are pushing to use instead some of the $25 billion for the development of fuel-efficient vehicles approved in a 2007 energy bill. Senate Majority Leader Harry Reid said a plan to use the financial-rescue funds doesn’t have the votes to pass.

GM, Chrysler and Ford Motor Co. are stuck in the middle, lobbying members of Congress, preparing for hearings this morning and making contingency plans if the money doesn’t come through. GM and Chrysler, which both said they need help this month to avoid going out of business, prefer Pelosi’s solution of drawing the money from the Treasury fund because such aid would be in addition to the energy-bill funds.

“The administration has full authority under the TARP law to make a loan to the industry as some kind of a bridge loan,” Pelosi said this week, referring to the Treasury fund, known as the Troubled Asset Relief Program, which was approved in October to help stabilize financial markets.

‘Try and Help’

“We have said we want to try and help” the auto companies, White House spokeswoman Dana Perino countered yesterday. “Let’s see what support it can get on Capitol Hill.”

Pelosi said she told Bush in a phone call that she favored tapping TARP funds to help the automakers. Pelosi doesn’t want to use the energy-bill money because that was intended to help develop fuel-efficient technologies, a central component of President-elect Barack Obama’s energy plan. The administration opposes diverting money intended for stabilizing the financial system to another industry.

“They can put any conditions on it that they wish that are appropriate,” Pelosi, a California Democrat, said.

GM CEO Richard Wagoner said bankruptcy isn’t among his plans for the company, adding that the carmakers are essential to the nation’s economy.

“It is very important for the United States to have a home team in this global auto industry,” Wagoner said before the congressional hearings began today.

Treasury Secretary Henry Paulson said bankruptcy of GM or Chrysler would be damaging to the economy. At the same time, however, he said he opposes using the TARP money to help the automakers. Instead, he favors using the funds appropriated in the energy bill.

Paulson’s Position

“There is congressional legislation that has passed, the Department of Energy bill, that has appropriated money for the auto industry,” Paulson said Nov. 2. “We pointed people in that direction.”

Federal Reserve officials want the solution for automakers’ cash problems to come from Congress and taxpayers, not the central bank.

“Congress will have to decide how they want to play this,” said St. Louis Fed President James Bullard in a Bloomberg Television interview Dec. 2.

This week the three automakers presented their plans for restructuring their businesses to lawmakers in hopes of winning approval for a bailout. The automakers’ chief executive officers are testifying to Congress on their requests today and tomorrow after lawmakers pressed them to show how they will survive and repay any loans.

GM and Chrysler said they need $11 billion in government loans just to survive the remaining weeks of 2008. The three companies asked for a total of $34 billion.

Slash Payrolls

In exchange, the companies have agreed to slash payrolls, shrink their dealership rosters and make other changes to ensure they will be able to repay the money.

In addition, the United Auto Workers Union yesterday agreed to reduce the automakers’ costs by delaying payments to a union health-care fund and suspending a jobs bank that pays laid off union members.

At a news conference in Chicago yesterday, Obama didn’t say whether he favored using TARP money or funds from the energy legislation.

“At this point, I’m more interested in seeing whether or not there is a sound plan there,” Obama said. “And then I’ll be in discussions and listening about where the best sources of money are.”

Industry Bailout

Kevin Book, an energy analyst at Friedman, Billings, Ramsey & Co. Inc., said he expects Congress will, in the end, approve an industry bailout.

“‘Yes’ is an easier road than ‘no,’” Book wrote in an e- mail to reporters. “ We expect Congress to take the path of least resistance, but not without a few grumbles and groans from fencesitters along the way.”

GM’s lead independent director, George Fisher, said he expects the U.S. to keep the automaker alive until Obama takes office Jan. 20, even if Congress remains deadlocked over the source of funds.

“There is a belief, stronger than a hope, that some very smart people in Washington do understand the importance of this issue,” Fisher said in an interview yesterday. “I suspect, somehow, from somewhere in the federal government, we will get enough bridge-loan capacity to get through at least to the next administration.”

Millions of Jobs

Wagoner told Congress last month that 3 million jobs could disappear, and government tax losses would reach $156 billion if the industry collapses. November auto sales plunged 37 percent to the lowest annual rate in 26 years.

If carmakers don’t get relief soon it’s “game over,” Michigan Governor Jennifer Granholm said in an interview on Bloomberg Television’s “Conversations With Judy Woodruff.” “There needs to be immediate relief.”

Pelosi ruled out allowing the companies to file for bankruptcy, saying it was “not an option.”

Pelosi may be forced to accept a redirection of the energy- bill money to a bailout, because most of the 49 Republican senators including Johnny Isakson of Georgia are opposed to using the TARP money. The measure will likely need 60 votes in the Senate to overcome procedural hurdles to legislation.

Isakson’s Opposition

“I oppose giving the auto industry or any other manufacturer funds from the economic stabilization bill,” Isakson said in a statement. “Easing the credit markets will allow the markets to work and that consumers will regain confidence.”

Representative Jeb Hensarling, a Texas Republican, said he is “more than happy” to allow the automakers to use the energy-bill funds to avoid bankruptcy.

“If this is such a dire emergency,” he said, the Democrats could waive or delay requirements in the 2007 legislation that the money be used exclusively to develop more fuel-efficient vehicles.

GM said it needs $4 billion by the end of this month and another $4 billion by the end of January as part of a total request of $18 billion.

Chrysler called its request a “bridge loan” to cover immediate expenses. The Auburn Hills, Michigan-based company, owned by Cerberus Capital Management LP, said it expects an operating profit next year, while using up $2 billion in cash.

Chrysler also said its plan assumes being awarded $6 billion in government loans for upgrading plants to produce more fuel-efficient vehicles, and it forecast building 500,000 electric autos in 2013.

Investing

Ford’s proposal includes investing about $14 billion in the next seven years to improve fuel efficiency. The second-largest U.S. automaker also calls for focusing on its namesake brand while considering selling its Volvo unit.

Some Republican senators, including Bob Corker of Tennessee and James DeMint of South Carolina, oppose any bailout and argue that the automakers should file for bankruptcy and then reorganize with financing from the government.

GM Director Fisher said a bankruptcy filing is still “way down the list of options,” and the focus remains on obtaining government loans.

“We are fearful, very fearful, of a prolonged proceeding that would just destroy our brand in the marketplace and therefore that is not considered a viable option,” he said.

To contact the reporters on this story: Alison Fitzgerald in Washington at Afitzgerald2@bloomberg.net;

Last Updated: December 4, 2008 10:02 EST