"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 in a White House statement. "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 question is how can we best give it a chance to succeed."
Of the federal funds, $13.4 billion will be paid out in December and January, according to administration officials. The final $4 billion hinges on the second installment of the Wall Street bailout funds from Congress. The government can call in the loans on March 31 if the firms cannot prove they are viable at that point. The details of the plan say "a firm will only be deemed viable if it has a positive net present value and can fully repay the government loan."
"We appreciate the President extending a financial bridge at this most critical time for the U.S. auto industry and our nation's economy," said General Motors in response to the bailout package. "This action helps to preserve many jobs and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us. This will allow us to accelerate the completion of our aggressive restructuring plan for long-term, sustainable success. It will lead to a leaner, stronger General Motors."
GM promised to provide "regular updates on our progress."
Chrysler Chairman and CEO Bob Nardelli issued a lengthy open letter in response to the action of the Bush administration.
"We intend to be accountable for this loan, including meeting the specific requirements set forth by the government, and will continue to implement our plan for long-term viability," he wrote. "The receipt of this loan means Chrysler can continue to pursue its vision to build the fuel-efficient, high-quality cars and trucks people want to buy, will enjoy driving and will want to buy again."
However, Nardelli said Chrysler will hold "concessions discussions quickly" with owners, lenders, suppliers, dealers, management and employees. He said the company "will continue to undertake significant cost reduction actions related to salaried workers." He noted that parent Cerberus Capital Management "has already agreed to forgo any benefit from the upside that would, in part, be created from the bridge loan and any other government assistance that the company may obtain."
The action by the federal government to help the Motor City is seen as a stopgap measure by many auto analysts.
"A couple of days before Christmas [President Bush] gives them a lifeline into the next administration," Michael Robinet, CSM Worldwide vice-president of global vehicle forecasts, told Inside Line on Friday. "But the other big issue is what happens on the credit side and the availability of credit to buy cars."
"This is just the beginning of a process," Robinet added. "It is looked at as a short-term bridge to a longer bridge. There will be a lot of heavy lifting needed by many parties around the table in the next 90 days. Everyone will have to come to the table — the unions, the companies, maybe even the government. What has been put in place is the beginning of a framework."
The statement from the White House was a detailed missive that even addressed the reluctance of consumers to buy vehicles "if you hear that a car company is suddenly going into bankruptcy."
"With consumers hesitant to buy new cars from struggling automakers, it would be more difficult for auto companies to recover," Bush said.
Bush noted that "Chapter 11 [bankruptcy] is unlikely to work for American automakers at this time."
He said the "more responsible option is to give the auto companies an incentive to restructure outside of bankruptcy — and a brief window in which to do it.
"There's too great a risk that bankruptcy now would lead to a disorderly liquidation of American auto companies," Bush said. "My economic advisors believe that such a collapse would deal an unacceptably painful blow to hard-working Americans far beyond the auto industry. It would worsen a weak job market and exacerbate the financial crisis."
Inside Line says: The federal government extends a hand to GM and Chrysler, but there is a lot more work to be done. — Anita Lienert, Correspondent
Add A Comment »