WASHINGTON — Citing imminent danger to the national economy, President George W. Bush ordered an emergency bailout of the U.S. auto industry Friday, offering $17.4 billion in rescue loans to General Motors and Chrysler and demanding tough concessions from the troubled automakers and their workers.
Detroit’s Big Three cheered the action and vowed to rebuild their industry, though they acknowledged the road would be anything but smooth as they fight their way back from the brink of bankruptcy.
The autoworkers union complained the deal was too harsh on its members, while Bush’s fellow Republicans in Congress said it was bad business to bail out another big industry.
Bush, who signed the massive $700 billion rescue for financial institutions this past fall, said he was reluctant to approve yet another government bailout of private business. But he said that allowing the auto industry to collapse in the middle of what is already a severe downturn “could send our suffering economy into a deeper and longer recession.”
Speaking at the White House, he also said he didn’t want to “leave the next president to confront the demise of a major American industry in his first days of office.”
President-elect Barack Obama, who takes office a month from Saturday, praised the administration action but warned, “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.”
Obama will be free to reopen the arrangement from the government’s side if he chooses, and the head of the United Auto Workers said the union would be appealing to the new president and the strongly Democratic new Congress on that subject.
Obama, commenting in Chicago as he named more economic Cabinet members, was noncommittal on possible changes. But he said he would “make sure that when we see a final restructuring package that it’s not just workers who are bearing the brunt.”
Stock prices rallied on Wall Street after Bush’s announcement but faded late in the day, and the Dow Jones industrials declined 25.88 points. GM shares, however, jumped 22.7 percent and Ford shares 3.9 percent. Chrysler is not publicly traded.
About $13.4 billion of the rescue money will be available this month and next — $9.4 billion of it for General Motors Corp. and $4 billion for Chrysler LLC, the two auto giants that have said they could be facing bankruptcy soon without government help. GM is slated to receive the remaining $4 billion in loans after more money is released from the financial rescue account.
Ford Motor Co. says it doesn’t need federal cash now but would be badly damaged if one or both of the other two went under.
Under terms of the loans, the government will have the option of becoming a stockholder in the companies, much as it has with major banks, in effect partially nationalizing the industry. Bush said the companies’ workers should agree to wage and work rules that are competitive with foreign automakers by the end of next year.
Bush called for elimination of a “jobs bank” program — negotiated by the United Auto Workers and the companies — under which laid-off workers can receive about 95 percent of their pay and benefits for years. This month, the UAW agreed to suspend the program.
Underscoring the automakers’ peril — and how close the bailout is cutting to the edge — GM chief financial officer Ray Young said the company expects to have the first money from the government by Dec. 29, just in time to pay suppliers.
Though auto stocks rose Friday, the companies’ stockholders aren’t out of the woods. Provisions in the bailout agreement will force GM to produce more shares, diluting the value of its stock several times over, said Efraim Levy, a senior auto industry analyst with Standard & Poor’s.
If the automakers fail to prove viability by March 31, they will be required to repay the loans, which they would find all but impossible. A firm will be deemed viable only if it can show positive cash flow and can fully repay the government loans.
Friday’s rescue plan retains the idea of a “car czar” to make sure the companies are keeping their promises and moving toward long-term viability.
