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President Bush has unveiled a $17 billion automaker rescue plan that will force the companies to restructure in order to remain competitive. A White House economist and a congressman debate the package.
A lifeline to the automakers. Margaret Warner begins with this report.
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.
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.
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.
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.
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.
And to Judy Woodruff.
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