Bush OKs $17.4B bailout of the auto industry

Citing danger to the national economy, President Bush approved an emergency bailout of the U.S. auto industry Friday, offering $17.4 billion in rescue loans in exchange for tough concessions from the deeply troubled carmakers and their workers.

Allowing the massive auto industry to collapse in the middle of what is already a severe recession "would worsen a weak job market and exacerbate the financial crisis," Bush said. "It could send our suffering economy into a deeper and longer recession. And it would 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 White House action but also 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, while also creating the fuel efficient cars of tomorrow."

Stock prices rallied on Wall Street as investors cheered the government's action. Republicans on Capitol Hill, though, expressed disdain for the bailout. And while the United Auto Workers said the plan would keep factories running, the union said it was upset by loan conditions "singling out workers."

"We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed," said Ron Gettelfinger, president of the UAW.

Obama will be free to reopen the arrangement from the government's side if he chooses, an administration official said.

Bush said, "The time to make hard decisions to become viable is now, or the only option will be bankruptcy. The automakers and unions must understand what is at stake and make hard decisions necessary to reform."

Some $13.4 billion of the money would be available this month and next — $9.4 billion of it for General Motors and $4 billion for Chrysler LLC. GM is slated to receive the remaining $4 billion in loans after more money is released from the financial rescue account.

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.

And he 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. Early this month, the UAW agreed to suspend the program.

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.

If the carmakers 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.

General Motors Corp. CEO Rick Wagoner said in Detroit that GM had much work ahead but he was confident it could reinvent itself with the government help and even lead an economic recovery in America.

House Republican leader John Boehner called the administration's plan "regrettable." He said that granting loans for automakers was never the intention when Congress passed the $700 billion plan to rescue financial institutions and that the new plan "has failed both autoworkers and taxpayers."

Rep. Jeb Hensarling, R-Texas, chairman of the congressional oversight panel for the Wall Street rescue program, decried the decision, saying a Chapter 11 reorganization, not loans rewarding decades of mismanagement, would have been a better decision.

"Unless union contracts are renegotiated, and unless demand picks up for domestic autos, $14 billion, $34 billion, $74 billion — even $104 billion — will not solve the problem," Hensarling said. "I fear that a devastating precedent has been set that the federal government will now be pressured to bail out every failing company in America — something that taxpayers and future generations cannot afford."

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, who plans to discuss the deal with congressional leaders and Obama's transition team in the near future, 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.

Friday's rescue plan retains the idea of a "car czar" to make sure the auto companies are keeping their promises and moving toward long-term viability.

The short-term overseer will be Paulson. But the White House deputy chief of staff, Joel Kaplan, said that if the Obama team wants someone else installed to bridge the administrations, Bush is open to that. Kaplan said there have been discussions with Obama's aides throughout the process and the White House believes Obama's view of the problem and the solution tracks with theirs.

The White House package is the lifeline desperately sought by U.S. automakers, who warned they were running out of money as the economy fell deeper into recession, car loans became scarce and consumers stopped shopping for cars.

The carmakers have announced extended holiday shutdowns. Chrysler is closing all 30 of its North American manufacturing plants for four weeks because of slumping sales; Ford will shut 10 North American assembly plants for an extra week in January, and General Motors will temporarily close 20 factories — many for the entire month of January — to cut vehicle production.

Chrysler CEO Bob Nardelli thanked the administration for its help.

In a statement Friday morning, Nardelli said the initial injection of capital will help the company get through its cash crisis and help eventually return to profitability. He said Chrysler was committed to meeting the conditions set by Bush in exchange for the money.

Ford President and CEO Alan Mulally said his company would not seek the short-term financial assistance but predicted the aid would stabilize the industry.

"The U.S. auto industry is highly interdependent, and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened U.S. economy," Mulally said.

UAW to renegotiate labor terms, suspend jobs bank

The United Auto Workers said Wednesday it is willing to change its contracts with U.S. automakers and accept delayed payments of billions of dollars to a union-run health care trust to do its part to help the struggling companies secure $34 billion in government loans.

United Auto Workers President Ron Gettelfinger said the union will suspend the jobs bank, in which laid-off workers are paid up to 95 percent of their salaries while not working, but he did not give specifics or a timetable of when the program will end.

"We're going to sit down and work out the mechanics," Gettelfinger said at a news conference after meeting with local union officials. "We're a little unclear on some of the issues."

Members of Congress criticized the automakers last month for paying workers who are not on the job. About 3,500 auto workers across the three companies are currently in jobs bank programs.

One local union member who was in the meeting said the changes to the jobs bank would nearly eliminate the program. The member asked not to be identified because the details had not been made public.

Gettelfinger stopped short of saying the union would reopen contract talks with General Motors Corp., Chrysler LLC and Ford Motor Co. but said it would be willing to return to the bargaining table to change some terms.

Talks with GM will begin immediately, but additional bargaining officials must be elected for Ford and Chrysler, Gettelfinger said, and any modifications would still have to be ratified by local union members.

He also said the union will run a television ad in Maine, Kentucky, Indiana and Minnesota to put the faces of union workers on the controversy over the loans, and explain how the auto industry differs from the banking industry. The ads presumably are designed to pressure Congressional opponents of the loans.

"There's a perception problem," Gettelfinger said, stressing that the automakers' woes have painted a negative view of the union. "Yes, we have lost some clout."

Delaying the health care trust payments will help the companies survive their cash shortages, which they say were brought on by the severe economic downturn and the worst U.S. sales climate in more than a quarter century.

GM had been scheduled to pay more than $7.5 billion early next year to the union-administered fund which will take over retiree health care payments on Jan. 1, 2010. Ford owes $6.3 billion to its trust fund at the end of this year. Chrysler figures were unavailable.

The delay will have to be approved by federal courts, which already have blessed the trusts' formation.

All three companies agreed to fund the trusts, called voluntary employee beneficiary associations or VEBAs, as part of the landmark 2007 contract reached with the UAW. By doing so they move billions in liabilities off their books.

When they go into effect, the trusts will pay health care bills for about 800,000 UAW retirees, spouses and dependents at the three companies. GM expects to save about $3 billion a year when the expenses are moved, while Ford says it will save $1 billion.

The CEOs of all three automakers are heading to Washington for more hearings Thursday and Friday on their loan requests after an abysmal showing before lawmakers last month. Gettelfinger will also attend.

Congressional leaders demanded business plans from all three that include a reduction in labor costs so Detroit is more competitive with foreign automakers with U.S. factories. The companies submitted their plans to Congress on Tuesday.

"I don't think Congress is out for blood," Gettelfinger said of the criticism the union received during his previous testimony last month. "There will be more pressure on us to do this. We're going to step up and do it."

That sentiment was echoed by several union representatives at the news conference.

"Everybody has to give a little bit," said Rich Bennett, an official for Local 122 in Twinsburg, Ohio, representing Chrysler workers. "We've made concessions. We really feel we're doing our part."

But a retired GM worker said the union might be acting hastily out of fear that one of the automakers could shut down.

"Fear is a bad basis on which to make decisions," said Frank Hammer, of Local 909 in Warren, Mich. "I think they're making another mistake."

Members at Local 122 are fearful of losing their jobs, said Bennett's associate, Ken Walters. They're seeing nearby plants shut down on regular basis.

General Holliefield, the UAW vice president representing Chrysler workers, said union members "historically do the right thing" in terms of making concessions during tough times, although the moves outlined Wednesday came to fruition following last month's congressional thrashing.

"Washington didn't ask us for concessions," he said. "It wasn't anything we were thinking about."

The president of Chrysler said the UAW's willingness to change the union's contract is a good step.

Chrysler LLC President Tom LaSorda said during a Toledo rally for the industry on Wednesday that both sides need to go back and review the entire framework of the contract. He said if the union would surrender job security protections it would help the Detroit Three in the long run.