Citing danger to the national economy, the Bush administration approved an emergency bailout of the US auto industry on Friday, offering $17.4 billion in rescue loans in exchange for concessions from the deeply troubled carmakers and their workers.
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.
At the same time, Treasury Secretary Henry Paulson said Congress should release the second $350 billion from the financial rescue fund that it approved in October to bail out huge financial institutions. Tapping the fund for the auto industry basically exhausts the first half of the $700 billion total, he said.
President Bush said, "Allowing the auto companies to collapse is not a responsible course of action." Bankruptcy, he said, would deal "an unacceptably painful blow to hardworking Americans" across the economy.
One official said $13.4 billion of the money would be available this month and next, $9.4 billion for General Motors Corp. and $4 billion for Chrysler LLC. Both companies have said they soon might be unable to pay their bills without federal help. Ford Motor Co. has said it does not need immediate help.
Bush's plan is designed to keep the auto industry running in the short term, passing the longer-range problem on to the incoming administration of President-elect Barack Obama.
Bush said the rescue package demanded concessions similar to those outlined in a bailout plan that was approved by the House but rejected by the Senate a week ago. It would give the automakers three months to come up with restructuring plans to become viable companies.
If they fail to produce a plan by March 31, the automakers will be required to repay the loans, which they would find very difficult.
"The time to make hard decisions to become viable is now, or the only option will be bankruptcy," Bush said. "The automakers and unions must understand what is at stake and make hard decisions necessary to reform."
He said the companies' workers should agree to wage and work rules that are competitive with foreign automakers by the end of next year.
And he called for elimination of a "jobs bank" program — negotiated by the United Auto Workers and the companies — under which laid-off workers receive unemployment benefits and supplemental pay from their companies for 48 weeks. If they remain laid off beyond that, they move to a jobs bank in which the company provides about 95% of their pay and benefits. Until the most recent contract, people could remain in the jobs bank for years. Early this month, the UAW agreed to suspend the program.
Under terms of the loan, GM and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price.
In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.
Paulson said that with the help for the carmakers, the government will have allocated the first half of the largest government bailout program in history.
He said he was confident that the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. have the resources to address a significant market crisis if one should occur before Congress approves the use of the second half of the rescue fund.
Paulson said he would discuss the process with congressional leaders and Obama's transition team "in the near future.
Source: Agencies
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