Democrats in Congress reached an agreement in principle with the Bush administration on providing funds to prevent a collapse of General Motors Corp. and Chrysler LLC, a congressional aide said.

Details of the legislation that will be voted on next week are still to be worked out, including the total amount of aid to be offered, the Democratic aide said. Still, the accord ends a dispute over the source of the funds that stalled congressional action for weeks.

The chief executives of GM and Chrysler testified at hearings this week that they need a combined $14 billion to keep operating through March 31. Under one possible scenario, Democrats would agree to use Energy Department funding and replace it with financial-bailout money when President-elect Barack Obama takes office and Democrats gain larger majorities in Congress in January.

Now it appears automakers “will get something,” said Clint Currie, a transportation analyst for Stanford Group Co. in Washington.

“This is at least one solution that could get the issue put to bed for the year,” Currie said. “Then the Obama administration can deal with it next year.”

The breakthrough came when House Speaker Nancy Pelosi said $25 billion in Energy Department funds for the development of fuel-efficient vehicles could be used to keep the automakers operating if there is a “guarantee that those funds will be replenished in a matter of weeks so as not to delay that crucial initiative.”

Pelosi and Bush

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.

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 on Dec. 9, and the Senate reconvenes a day earlier.

House Financial Services Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd are to meet at noon Washington time today at the Capitol to draft the legislation, the aide said, speaking on condition of anonymity.

Pelosi spoke directly with White House Chief of Staff Josh Bolten yesterday afternoon in an effort to resolve the issue, the aide said.

Veto Threat Removed

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, as smaller firms do.

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.

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.

‘Good Beginning’

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

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.

Representative Spencer Bachus of Alabama, the House committee’s top Republican, told reporters he backs a short-term loan “only when there is an agreement that there’s going to be a fundamental restructuring” of the automakers.

Bachus said the House “absolutely” will meet next week and that he’s “confident” Congress will act to help automakers. He said there’s “one thing that neither the industry or the American economy can’t take, and that’s a liquidation.”

By John Hughes and Laura Litvan

Dec. 6 (Bloomberg) --