White House Announces $17.4 Billion Auto Rescue
The Bush administration announced a rescue plan for the sinking U.S. auto industry Friday, offering $17.4 billion in loans conditioned on concessions from carmakers and a return to viability by March 31.
“If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy,” Mr. Bush said at the White House Friday. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed.”
Bankruptcy, he said, was unlikely to work for the auto industry at this time and would deal “an unacceptably painful blow to hardworking Americans” across the economy.
“It would worsen a weak job market and exacerbate the financial crisis,” he said. “It could send our suffering economy into a deeper and longer recession.”
One official said $13.4 billion of the loans will be available almost immediately in December and January, according to the Associated Press. The money will come from the $700 billion bailout fund set aside to help Wall Street firms and banks in October.
According to the Washington Post, the funds offered to the companies come with some tough conditions. The White House will not appoint a “car czar” to oversee the industry, part of an earlier proposal floated Capitol Hill, but the companies will have to restructure their wage and benefit plans so that by the end of 2009 they are competitive with foreign automakers that have non-union plants in the U.S.
In addition, by March 31, the companies will have to show they are financially “viable” and able to repay the government.
Of the total sum, $9.4 billion is slated for General Motors Corp. and $4 billion for Chrysler LLC. Chrysler issued a statement thanking the administration but saying the terms will require “consideration,” reported Politico.
Both Chrysler and GM have said without federal help they would be unable to pay their bills within a matter of weeks. The companies had asked for at least $8 billion by the end of the month to avoid bankruptcy and at least $14 billion to get through the first quarter, according to the Detroit Free Press.
Ford Motor Co., which took a line of credit just before financing dried up, has said it does not need immediate help. The company has more cash on hand and has said it should be able to avoid tapping into federal dollars unless the weak U.S. auto sales continue long into 2009.
U.S. auto sales are at 26-year lows last month as the economic crisis continues and credit grows harder for consumers to get.
A senior administration official briefing reporters said he expects that GM and Chrysler LLC will be signing the loan papers to access the cash later Friday morning.
The loans are three-year loans but the government will own a stake in the companies and the money will have to be repaid immediately if the firms do not show themselves to be viable by March 31. The companies are expected to negotiate new agreements with unions and creditors in order to improve their standing.
“The time to make hard decisions to become viable is now, or the only option will be bankruptcy,” President Bush said Friday. “The automakers and unions must understand what is at stake and make hard decisions necessary to reform.”
Mr. Bush’s plan is designed to keep the auto industry running in the short term, but passes the longer-term problem of evaluating whether the companies have done enough to restructure and reform to the incoming administration of President-elect Barack Obama.
After the Senate failed to vote for a $14 billion bailout for GM and Chrysler, both companies announced new cost cutting initiatives this week. Chrysler took the most drastic measures, saying it would temporarily close its U.S. factories through most of January to save cash.