President Bush Offers Automakers A $17.5B Bailout
Friday, December 19, 2008SUSIE GHARIB: The White House gives an early Christmas present to Detroit's auto makers: a $17 billion loan. General Motors and Chrysler will get emergency loans from the government's Troubled Asset Relief Plan or TARP. That's the program set up to bail out the financial services industry. Ford Motor said it can continue operating without government help. Chrysler's majority owner, Cerberus Capital, also agreed to put $2 billion into the auto maker. The rescue package comes with strings attached and designates an administrator to make sure the auto makers hit the government target. Stephanie Dhue reports.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: President Bush says government financing wasn't his preferred option, but it was the best one.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: There's too great a risk that bankruptcy now would lead to a disorderly liquidation of American auto companies. My economic advisors believe that such a collapse would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry.
DHUE: The loans, $13.4 billion for GM and $4 billion for Chrysler come with conditions. The companies must prove their assets will be worth more in the future than they are now. If they can't do that by March 31st, the loans will be called. Some analysts say that's an impossible target to meet, but GM CEO Rick Wagoner says it can be done with the plan his company already outlined to Congress.
RICK WAGONER, CEO, GENERAL MOTORS: I think what we need to do is show that we can get that stuff done on the required timeframe and then on the basis of that, we will develop future projections for the company. And I'm highly confident we'll be able to meet that test.
DHUE: That test will come after Barack Obama becomes president. The way the loans are structured gives Obama leeway to determine if the companies are meeting their goals. Today he said the auto makers have a clear challenge.
PRESIDENT-ELECT BARACK OBAMA: The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely necessary to save this critical industry and the millions of American jobs that depend on it.
DHUE: Roughly one quarter of today's headline $17 billion number is contingent on drawing down the second half of the TARP funds. ISI political economist Tom Gallagher says that means the ultimate decision about whether the auto makers are viable will be made by Congress.
TOM GALLAGHER, POLITICAL ECONOMIST, INTERNATIONAL STRATEGY & INVESTMENT: So it's maybe more of a political viability test than an economic viability test that's ultimately going to determine what Washington does.
DHUE: What Washington does will depend on how well GM and Chrysler negotiate with their unions, bondholders and dealers to reduce the auto makers' debt and whether they can make the case that their companies will be around for the long haul. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
