President George W. Bush offered a $17.4 billion government lifeline to ailing automakers General Motors (GM.N) and Chrysler LLC CBS.UL to prevent a deeper economic recession but he demanded they prove by March 31 that they can survive.
With only a month before leaving office, Bush emphasized that he normally opposed intervening in the free market but that the U.S. economy was too fragile now to allow the two big automakers to go bankrupt and throw thousands out of work.
"The automakers and unions must understand what is at stake and make hard decisions necessary to reform," Bush said in a statement. "By giving the auto companies a chance to restructure, we will shield the American people from a harsh economic blow at a vulnerable time."
The collapse of the auto industry would have been another blow to the Republican president's legacy, already tarnished by an economy in recession, the country fighting two wars and low popularity ratings.
The White House said before reaching agreements for the three-year loans, administration officials consulted with Democratic President-elect Barack Obama's team but declined to say what input, if any, they provided.
Chrysler, which is the weakest of the automakers, will get $4 billion in initial funding. The company said concessions would happen quickly and it would continue to undertake "significant cost reductions."
GM, due for $13.4 billion, said the bailout will lead to a leaner and stronger company. Ford, which says its liquidity is adequate for now, said it hoped to continue restructuring without need for a government line of credit.
Conditions imposed by the White House include requiring the automakers to provide restructuring plans by March 31, with an interim report in mid-February. There would also be limits on executive compensation and other perks and the government would receive warrants for non-voting stock.
"These conditions send a clear message to everyone involved in the future of American automakers: the time to make hard decisions to become viable is now or the only option will be bankruptcy," Bush said.
White House Deputy Chief of Staff Joel Kaplan told reporters that the terms of the loan were tough and tried to accomplish many of the goals laid out in legislation that Congress failed to approve earlier this month.
"I think that they have to be tough if we're to be successful in achieving the restructuring that I think most objective observers would say is necessary for these companies to be viable," he said.
The money for the loans would come from the $700 billion Troubled Asset Relief Program, which was originally established to help struggling financial institutions and the White House had resisted using for the automakers for weeks.
Kaplan also said that talks were still ongoing on aiding the financing arms of the automakers. Continued...