JIM LEHRER: A lifeline to the automakers. Margaret Warner begins with this report.
MARGARET WARNER: The president announced the emergency action one week after Senate Republicans killed a congressional plan to aid the failing Detroit automakers.
Mr. Bush has extolled free markets throughout his presidency, but today he outlined why he authorized this latest government intervention into the private market.
U.S. PRESIDENT GEORGE W. BUSH: If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers.
Under ordinary economic circumstances, I would say this is the price that failed companies must pay and I would not favor intervening to prevent the automakers from going out of business. But these are not ordinary circumstances.
MARGARET WARNER: The president said the automakers’ failure would exact a severe toll on a weak economy. The Treasury Department will provide more than $17 billion in emergency loans to General Motors and Chrysler. The funds will come from the $700 billion Troubled Asset Relief Program passed by Congress.
GEORGE W. BUSH: These loans will provide help in two ways. First, they will give automakers three months to put in place plans to restructure into viable companies, which we believe they are capable of doing.
Second, if restructuring cannot be accomplished outside of bankruptcy, the loans will provide time for companies to make the legal and financial preparations necessary for an orderly Chapter 11 process that offers a better prospect of long-term success, and gives consumers confidence that they can continue to buy American cars.
MARGARET WARNER: Under the terms of the plan, General Motors will receive $9 billion and Chrysler $4 billion before the end of this year. An additional $4 billion will be available in February.
Ford did not request assistance.
The companies must submit plans for restructuring and prove by March 31st of next year that they are financially viable. Unions must agree to restructured wage and benefit packages more in line with the compensation paid non-union workers at foreign-owned carmakers in the U.S. Executive pay will be capped. Bondholders will be asked for significant concessions to lessen the two companies’ debt loads.
G.M.’s chairman Rick Wagoner said in Detroit that he was relieved and appreciative. He also said the bailout provided an opportunity.
RICK WAGONER, CEO, General Motors: The future for this industry could be extremely bright. And I would add, at a very important time, because the industry is now beginning a process of converting away from the technology we’ve used for, you know, more or less 100 years to propel our vehicles to new technology.
MARGARET WARNER: Wagoner said he did not anticipate G.M. needing more than $18 billion, which suggested his firm would return to the incoming Obama administration for additional funds.
After the announcement, Cerberus Capital, the private equity group that owns Chrysler, said it would funnel $2 billion of its funds into the struggling automaker.
The reaction from the United Auto Workers was more negative. President Ron Gettelfinger said in a statement, “While we appreciate that President Bush has taken the emergency action needed to help America’s auto companies weather the current financial crisis, we are disappointed that he has added unfair conditions singling out workers.”
Gettelfinger said the terms were harsher than the legislation that failed last week, and he would ask the new Congress and president to amend it later.
The incoming president lauded the action this afternoon. He said the automakers “must not squander this chance to begin long-term restructuring,” and he echoed some of the union’s concerns.
U.S. PRESIDENT-ELECT BARACK OBAMA: There are going to be some painful steps that have to be taken. I just want to make sure that, when we see a final restructuring package, that it’s not just workers who are bearing the brunt of that restructuring, that they’re not the ones who are taking all the hits, and others who, in the past, have enjoyed a lot more of the benefits of the auto industry somehow aren’t being affected.
MARGARET WARNER: The $13 billion in initial loans to G.M. and Chrysler this year will exhaust the first half of the $700 billion rescue plan adopted in October.
JIM LEHRER: And to Judy Woodruff.
Preventing disorderly bankruptcy
JUDY WOODRUFF: For a closer look at the rescue plan and what happens next, we begin with the Bush administration's view. It comes from Ed Lazear, the chairman of the President's Council of Economic Advisers.
Mr. Lazear, thank you very much for joining us.
ED LAZEAR, chair, White House Council of Economic Advisers: Thank you.
JUDY WOODRUFF: So what do you and the president believe would have happened if you had not given this help to the auto industry?
ED LAZEAR: I think the president's view -- our view -- was that, in the absence of the help that we gave today, this would have been a situation where they would have entered Chapter 11, but would have quickly slid into a Chapter 7 liquidation situation.
Unfortunately, as a result of credit market conditions deteriorating and deteriorating very quickly, these firms have not had the ability to raise capital on the outside as they probably would have a few months ago and certainly back a year ago.
So we were in a situation where we were concerned about losing a million jobs. That means a million people out of work directly at a time when the economy is struggling, when jobs are not easy to find. As you know, unemployment rates have gone up. That's not something we're happy about. We're certainly concerned about it, and we didn't want to exacerbate that problem.
So I think the president's view was that, while these companies might survive a Chapter 11 situation, that was not a risk that we were willing to take at this point.
Giving the companies a few months to work things out, work with the stakeholders, labor, creditors, equity-holders, everybody will be involved in this, that's the kind of thing that we think is necessary.
And at that point, we believe these companies are going to succeed. We don't think that Chapter 11 will ever be necessary.
JUDY WOODRUFF: Well, what gives you confidence, Mr. Lazear, that they are going to become viable? Clearly they've been struggling. They've been trying to do this for a long time. It hasn't worked. If anything, they're in worse economic times than ever. What gives you the confidence?
ED LAZEAR: Well, this is -- if nothing else, this is a wake-up call. But we believe that the primary factor is that, when the economy turns around, these companies can be profitable, particularly if they take these steps to restructure.
If they do not take these steps to restructure, they will not have the option to continue into the future under these circumstances, so we think that the package that we designed is one that will force them to do the things that are necessary to make them viable.
And that's the key condition; viability is the key component here. We think it's attainable, and we think that these companies can successfully compete in the future.
JUDY WOODRUFF: Have you talked to the companies, communicated with them about how they get their debt-holders, their bondholders to agree to reducing the debt that you're asking them to do?
ED LAZEAR: This administration has been in close contact with the companies for a period of time now. We've been trying to work things out with them. Obviously, they have talked to Congress, and they were trying to work things out with Congress. Unfortunately, that failed.
So we got it back in our laps. And the president had to make a decision on that, and that's why he did.
But this has certainly been with a great deal of communication. This is not something that came as a shot out of the blue.
Still, as the president expressed this morning, it was a very tough decision. There are no good solutions here. All of the options were ones that we wish we didn't have to take, but we took the one that we thought was the best for the American economy.
Officials feared deeper recession
JUDY WOODRUFF: What about the argument by Mr. Gettelfinger of the UAW that this unfairly singles out the autoworkers?
ED LAZEAR: Well, that was surely not the intention of our plan, and I certainly don't understand that, because we're talking about debt -- creditors taking a very big change in their position, swapping debt for equity. There are many other kinds of factors that go -- that are involved in this.
And, in particular, equity-holders who are at the end of the line in this will certainly be taking a hit, too, if things don't work out. They'll lose all of their money, presumably. So the unions are not the only ones on the hook.
And, in fact, I would say that the president's -- certainly one of his primary concerns when he was thinking about doing this, and the reason that he did take these actions, is that he was very worried about those workers and that was a key consideration.
So I would reject the notion that we were not sufficiently concerned about the UAW and its workers.
JUDY WOODRUFF: There are almost two dozen Republican members of Congress, one of whom we're going to be talking to in just a moment, who essentially argue the administration is kicking the can down the road, that you're asking the auto industry to do something, but in essence it's going to be up to the next administration to finally get this done.
ED LAZEAR: Well, I would say two things. First, I would say we wish Congress had taken the action so that we didn't have to. They had the option of doing so and decided not to and left town. So we just simply did not have a choice.
So I don't think this is a time at which Congress should be criticizing us for a position that we made very clear to them that we would be in. We talked to them and tried to persuade them to do what we thought was probably the best course of action, but they didn't do that.
Now, as far as kicking the can down the road, I have every confidence that President Obama will see things in a similar way. He is also concerned about the economy. He is also concerned about the viability of these companies.
And I believe that the numbers that he will be looking at in March will be much more favorable in terms of viability. But if they are not, I am certain that he will not want to have this problem just linger on during his administration for the whole time and he will be forced to take action one way or the other.
And I believe he'll take the appropriate action. But that's for him to decide. He will be president at the time, and that's what democracy allows us to do. He's the president; he makes the decisions.
JUDY WOODRUFF: What about another argument one hears from the conservative side, and that is the government is picking winners and losers in business here, and that you're setting a precedent that opens the door for other companies, other businesses to come to you and say, "Hey, you helped the auto industry. Help us"?
ED LAZEAR: Well, that's surely a concern. And I would not deny that that's always a consideration. And it's one that the president takes into account all the time. That's why he said he believes that markets should be allowed to work and, under ordinary times, he would have allowed markets to work, because he is concerned about these kinds of spillover effect, the sometimes called moral hazard kinds of things that you're talking about, absolutely no doubt about it.
But we're just not in a situation now where we were able to put that as the primary concern. The primary concern is causing very significant damage to an already fragile and fragile economy that's in recession. And we just felt that we couldn't take the chance of doing any additional harm to it.
JUDY WOODRUFF: Edward Lazear, chairman of the Council of Economic Advisers, thank you very much for taking the time to talk with us.
ED LAZEAR: Thank you. Pleasure to be with you.
JUDY WOODRUFF: We appreciate it. Thank you.
Some skeptical about plan
JUDY WOODRUFF: And now a skeptical response about the plan. It comes from a Republican congressman, Scott Garrett of New Jersey. He serves on the House Financial Services Committee. He is one of more than 20 Republican members who wrote to President Bush saying this aid should not be given.
Well, Congressman Garrett, you've just heard Mr. Lazear, you heard the president today saying, if we didn't do this, these companies were going to liquidate, and there were going to be huge repercussions throughout the economy.
REP. SCOTT GARRETT, R.-N.J.: Certainly. And all of us, all the people who signed that letter, I think, share those concerns. I mean, we're concerned about the companies themselves.
We're concerned about making sure the United States will have an auto industry, that we have a manufacturing base and, certainly, for the personal sacrifices that are being made by the members who work for those unions.
You know, I don't think our concern has to end, though, with that industry. We also have to concern about all the other industries that are out there, as well, and also the American family, who is struggling as we speak right now.
We have to concern what sort of debt that we're going to be putting on them. And some of the questions that you rightly raised for Ed really haven't been answered yet.
You know, we're sitting here today with the plan that the president announced this morning, really in the same posture that we were just a -- I guess a few weeks ago when the auto industry first came. It came to Congress one time and said, "Here's our plan." We said, really, it's not a plan. They came back a second time, and they really didn't fill in much of the details, and we really still haven't filled it out now.
JUDY WOODRUFF: So when the president says he's doing this because he's concerned that the country will go into an even deeper recession, losing a million jobs, you're saying that is not an argument that persuades you?
REP. SCOTT GARRETT: It's certainly an argument that we're concerned about. We have seen the prospects of loss of jobs there.
But interesting enough on that point is, no one's really told us what would be the job loss still going forward with this plan in place. And the answer -- the reason for that is because we really haven't seen the final details on it.
And when you use that expression of kicking the can down the road, you know, it's no aspersion against the administration. They're doing what they think is best in the moment right now.
But we do know this: The problem is not unique to our auto industry. Toyota, I believe, reported losses for the first time in 70-some-odd years. There's a problem out there selling cars, so some of us would argue that there are other solutions. We need to actually get the consumer buying again.
And you can do all the fixes in the world you want as far as getting the manufacturing going, but if Americans aren't buying those American cars, none of these plans will work.
JUDY WOODRUFF: You said you haven't seen a plan yet, but there are clearly conditions attached to this. Among other things, they're saying the government needs to review every decision that's over $100 million. There clearly are demands on the debt-holders. There are demands on the autoworkers union. What about some of those conditions?
REP. SCOTT GARRETT: Well, a couple points on that. When you say about the government overseeing it and what have you, call me a skeptic, but this is the same government that comes through -- ends the 110th Congress with $450-some-odd-billion deficit before we even start talking about this bailout or the TARP bailout, what have you.
This is a government that -- not this administration, but this Congress, that has not done so good at managing its own dollars. So before we start telling some other industry how you should be managing your operation, maybe we should be looking ourselves in the mirror on that card.
And as far as dealing with the overall issue as far as the parameters that are set out there, remember how it actually all works. It really doesn't say, "You have to do this today in order to get the loan," just like you and I would if we went to go to a bank and said, "We want to have a loan." They would say, "Well, before you get the money for your car, you have to put up this collateral, what have you."
This is simply saying, "You have to do these things down the road, by the end of March, what have you, but you still get the money in the interim." So the taxpayer is still potentially on the hook for these dollars.
What will happen in March?
JUDY WOODRUFF: But isn't their argument that, if they don't get the money, the companies will liquidate, as we just heard Mr. Lazear say?
REP. SCOTT GARRETT: We certainly heard that argument, and we're concerned about that, but we would suggest that the process -- A, the process didn't really look at all the alternatives, B, the process, even if they are the best-case scenario, doesn't address the issue of changing the underlying structure of the companies to make sure that, if everything is in a positive note, that people actually start buying cars again.
I'll just give you one comment on that: There's a number of bills that are out there...
JUDY WOODRUFF: Wait a minute. You're saying people will -- you're saying you question whether people will start buying cars again?
REP. SCOTT GARRETT: Sure, because look at the numbers right now. The numbers, ballpark figures, 15-some-odd-million cars sold previous, about some-odd-year ago. Now you're looking around 10 million cars being sold.
You could put in a plan in place where these three companies will actually be manufacturing in a more efficient, environmental manner that's productive, but if the car sales don't increase, the game plan won't be able to be in place to actually get our money back. So we have to do that.
And that can be done from the bottom up, by tax credits and the like, to encourage Americans to go out and buy cars again.
JUDY WOODRUFF: Another point on bankruptcy. You and others have said, why not Chapter 11? But we know that, in connection with that particular option, money has to be raised to finance the bankruptcy arrangement. So are the conditions in place, if they were to do something short of what the administration...
REP. SCOTT GARRETT: Yes, I guess the word that Barney Frank was using in Financial Services the other day is that's a counterfactual at this point. In other words, to say that you've already sort of opened up the barn door as far as financing to them. It's anyone's guess whether or not they would be able to come up with the mechanisms in place to bail them out if that was not the case.
In the meantime, should we be putting the taxpayer on the hook for those dollars until we actually get a specific answer, not only from the -- not only from the unions, but from the bondholders and the like?
JUDY WOODRUFF: What do you expect to see from these companies at the end of March? I mean, based on what you heard -- not only what Mr. Gettelfinger said, and he's obviously unhappy about what he feels is unfair treatment toward the workers, but what Mr. Wagoner at G.M. said today.
REP. SCOTT GARRETT: There's a couple different scenarios that could happen. One is that this -- to use the expression again, pushes the can down the road. And at that time, we have a new administration, the same administration that's already said they're talking about a $600 billion, $700 billion, $800 billion stimulus plan.
So the unions and what have you may come back and say, "Look, we're in an even better situation now. We don't have to make concessions on A, B, and C here, because we have a new administration in town that's willing to lend all over the place and spend all over the place."
"We can just come back to Congress and not ask for the $15 billion or the $25 billion," that they did the second meeting. First meeting I think was $35 billion. And it was an economist who said it was $75 billion. So we may be in a time when they'll just say, "Just help us out to get us through this."
JUDY WOODRUFF: So you're saying they're not operating in good faith? Is that what you're saying?
REP. SCOTT GARRETT: I wouldn't say that, but they would be under different dynamics at that point in time, a new Congress, a new administration that says that we're going to try to get this economy kick-started by a stimulus plan that we've never seen in the likes of this history of this country.
JUDY WOODRUFF: All right, we're going to leave it there, Congressman Scott Garrett. Thank you very much for talking with us.
REP. SCOTT GARRETT: Appreciate the chance. Thank you.