Bush grants carmakers $17.4B in loans

President Bush on Friday moved to prevent the collapse of
General Motors and Chrysler by granting them $17.4 billion in immediate loans
from the $700 billion financial rescue package.

The companies would get $13.4 billion in immediate loans, and could tap into an additional $4 billion in loans early next year, according to the White House.

Bush described his decision as difficult, and said he
normally would have favored allowing a failing company to fall into bankruptcy
without government help.

{mosads}“But these are not ordinary circumstances,” he said. “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.

“There’s too great a risk that bankruptcy now would lead
to a disorderly collapse of American auto companies,” said Bush, which would be
a blow to workers “far beyond” the auto industry.

“It would worsen a weak job market and exacerbate the
financial crisis,” Bush said. “It could send our suffering economy into a deeper
and longer recession.”

The president faced a tough choice. Republicans have
largely broken with the president over helping the auto companies, with Senate
GOPers last week rejecting a deal. Several Senate Republican leaders have repeatedly said that it would be better to let a failing auto company enter bankruptcy.

Yet doing nothing might have meant a historic collapse of
General Motors that could have been a final footnote in the Bush
administration’s legacy.

Bush defended his actions, saying bankruptcy was not a
viable option given the state of the economy. Bush argued that the financial
crisis had exacerbated automakers’ problems, and repeated arguments made by Big
Three executives that consumers would worry warranties would not be honored and
parts and servicing would not be available from a bankrupt carmaker.

“The convergence of these factors means there is too
great a risk that bankruptcy now would lead to a disorderly liquidation of
American auto companies,” Bush said.

Doing nothing for the Big Three also would have left a
huge problem for President-elect Obama, who already is inheriting a troubled
economy, Bush said. Obama has offered support for helping the auto companies.

Money for the loans will come from the $700 billion
bailout for the nation’s banks that was approved in October. Republicans in
Congress had urged Bush not to use those funds on the automakers without
imposing strict conditions on the auto companies and the United Auto Workers
(UAW) union.

Bush said conditions for the loans were similar to those
considered by Congress, where a bailout package was approved by the House last
week but was blocked in the Senate by Republicans.

The president stated that companies accepting the loans
would have three months to offer plans for restructuring themselves into viable
companies. Those that fail will have to repay the loans by March 31, he said.

Bush said the timeframe would also give companies time to
draw up orderly plans for a Chapter 11 bankruptcy process. He said the credit
crunch troubling the wider economy, which has led to the weakest auto sales
since World War II, meant auto companies had not had time to prepare for an
orderly bankruptcy.

On a key point that led to the collapse of a bailout in Congress last week, Bush said workers would have to agree to wages
competitive with foreign companies for automakers to keep the loans.

Bush  did not mention any specific date, but White House Deputy Chief of Staff for Policy Joel Kaplan said wages and benefits must be competitive with those of foreign manufacturers operating in the United States by the end of 2009. 

Rep. John Dingell (D-Mich.), a longtime advocate for the Big Three and auto workers, praised the  deal but singled out conditions on wages for criticism. He said it was “irresponsible during a time of economic crisis” to insist that workers take further wage cuts.

“No one is asking corporate executives to reduce their salaries to levels similar to that of their Japanese counterparts, and no one required the employees of Citibank or AIG to take a pay cut,” Dingell said in a statement. He urged Obama to revisit the issue as his first priority upon being sworn in.

Last week’s package collapsed in the Senate over GOP
demands that the UAW agree to a date certain in 2009 when
U.S. worker wages, benefits and pensions would be leveled with those paid by
foreign auto companies producing in the U.S. The UAW said it could agree to
such a date in 2011, when its current contract expires.

Ford, which does not need immediate loans but had warned
that the collapse of either of the other Big Three companies would have hurt
it, said it appreciated the “prudent” step.

“The U.S. auto industry is highly interdependent, and a
failure of one of our competitors would have a ripple effect that could
jeopardize millions of jobs and further damage the already weakened U.S.
economy,” Ford President and CEO Alan Mulally said.

“On behalf of all Ohioans, I am grateful the president
stepped in to help thwart a disaster that would have sent our state over the
cliff,” said Ohio Sen. George Voinovich, one of the few Republicans who
supported last week’s congressional package.

The decision comes after Chrysler and GM appeared to move
closer to the edge. Chrysler announced this week that it would shutter its
plants for a month beginning this weekend. GM and Ford have also announced
plans to extend holiday-season plant shutdowns.

This story was updated at 10:50 a.m.