U.S. President George W. Bush today said his administration is prepared to loan $17.4 billion to the three major U.S. automakers.
The offer comes a little more than a week after the U.S. Congress refused to come to the rescue. But Bush said he really had no alternative but to step in.
Bush is a fierce defender of the free market and an strong opponent of bailing out failed industries. But he said helping General Motors, Ford, and Chrysler was his only responsible option.
"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," Bush said. "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. 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 package is designed only for the short term, which will leave Bush's successor, President-elect Barack Obama, to take on the long-term problem. But if in three months the companies haven't developed plans for successful restructuring, Bush said, they'd have to pay back the money.
And that's not all. The auto companies will have to put strict limits on pay and other benefits that have been enjoyed by executives who have mismanaged the industry for the past three decades. The unions representing the workers also must agree to wage and other concessions to make them competitive with their foreign counterparts.
In fact, Bush said, virtually every person and business linked to the U.S. auto industry will have to give up something.
"This restructuring will require meaningful concessions from all involved in the auto industry -- management, labor unions, creditors, bond holders, dealers, and suppliers," Bush said. "In particular, automakers must meet conditions that experts agree are necessary for long-term viability."
Bush said the loans have a second function: giving the companies the time they'd need to prepare for bankruptcy filings, if necessary, under which a bankruptcy court would oversee the restructuring of their operations.
The loan money will come out of the $700 billion Troubled Assets Relief Program, or TARP, which Congress funded in October to help rescue banks and other financial institutions facing crippling losses from their investments in bad mortgage loans. The TARP cash is now about half-exhausted.
The assistance Bush announced today is similar to the rescue package that the U.S. House of Representatives approved but the Senate rejected.
Bush said the problems the U.S. auto industry faces are self-inflicted, but have been made worse by the current worldwide economic climate.
"The financial crisis brought the auto companies to the brink of bankruptcy much faster than they could have anticipated, and they have not made the legal and financial preparations necessary to carry our an orderly bankruptcy proceeding that could lead to a successful restructuring," Bush said.
In Detroit, where all three auto companies have their headquarters, General Motors Chief Executive Rick Wagoner told reporters at a news conference that he has no illusions about the hard work he and his American competitors face.
"We know we have a lot of work in front of us to accomplish this plan, and we look forward to working closely with the administration and appropriate government officials, our debt-holders, unions, dealers, suppliers, and other key stakeholders," Wagoner said. "It's our intention to be transparent as we execute our plan, and we will provide [the media] regular updates on our progress. Once again, we thank the administration for this important support for our industry at a very challenging time, and we look forward to proving what American ingenuity can achieve."
Wagoner noted that the U.S. auto industry is now 100 years old, and that the loan package will serve as a financial plan for the next 100 years. Thanks to Bush, he said, the industry will survive and lead the country's economic recovery.