President Bush announces a $17.4 billion in low-interest loans to General Motors Corp. and Chrysler LLC, a cash lifeline meant to keep the auto makers from tumbling into bankruptcy and provide a bridge to a second rescue package expected later next year.
Detroit’s auto makers responded to the package with pledges to restructure their businesses quickly. Although the support does not include the “orderly bankruptcy” Bush suggested earlier in the week and the industry roundly opposed, it orders the auto makers to put their United Auto Workers union retirement plans on sustainable footing, persuade bondholders to convert their paper into equity, and make their blue-collar labor costs competitive with foreign transplants.
“We know we have a lot of work in front of us,” GM Chairman and CEO Rick Wagoner tells journalists in a conference call following Bush’s announcement. “We look forward to working closely with the administration and the appropriate government officials, our debt holders, union, dealers, suppliers and other key stakeholders.
“We look forward to proving what American ingenuity can achieve. Our goal is to reinvent our company and once again make General Motors the global auto industry leader in technology, quality and design.
“Our industry helped build this country and today our mission is to lead an economic recovery in America,” he says.
Wagoner acknowledges the auto maker’s present situation as unfortunate, but admits the loans provide GM an opportunity to shed a burdensome legacy of overly generous union contracts and lethargy on the fuel-efficiency front.
“As difficult as it is, it is an opportunity for us to once and for all get the negative side of 100 years of history leveled up so we can look forward to the next 100 years without some of the burden of history,” he says.
Bush’s plan also would seem to solidify Wagoner’s position atop GM, which was shaken earlier this month when Sen. Christopher Dodd (D-CT) called for him to “move on.”
Wagoner says he has no plans to leave GM, where his career began out of college in 1977.
“You think I’d have gone through the last two months if I didn’t want to stay?” he says. “We are more energized than ever now that we have the support we need.”
Chrysler Chairman and CEO Robert Nardelli says the auto maker will hold itself accountable to conditions of the support, which threatens a recall of the loans if auto makers do not make significant restructuring progress by March 31.
“For Chrysler to succeed in its mission to return to profitability, we need the continued support of our many business partners,” Nardelli says in a letter to employees. “These concessions discussions will happen quickly.”
Bush’s plan does not address Ford Motor Co.’s request for an emergency credit line of $9 billion in case the economic situation worsens.
Ford says it has enough cash to get through 2009, but it faces the same depressed market and credit crunch as GM and Chrysler, a combination forcing it to burn cash at a comparable rate. Also, a failure by GM or Chrysler would push Ford closer to a crisis.
“As we told Congress, Ford is in a different position,” Ford CEO Alan Mulally says in a statement. “We do not face a near-term liquidity issue, and we are not seeking short-term financial assistance from the government.
“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,” he says.
Ford spokesman Mark Truby tells Ward’s: “We understand that what the administration did today was, and should have been, focused on assistance for our domestic competitors with near-term liquidity needs.
“But we'll continue to work with the administration and Congress on our request for a long-term line of credit that we would only access if the economy continues to degrade or one of our domestic competitors should falter.”
UAW President Ron Gettelfinger says all stakeholders should share in the sacrifices required as conditions of the loans.
“While we appreciate that President Bush has taken the emergency action needed to help America’s auto companies weather the current financial crisis, we are disappointed that he has added unfair conditions singling out workers,” he says. “These conditions were not included in the bipartisan legislation endorsed by the White House, which passed the House of Representatives and which won support from a majority of senators.”
The loans approved by Bush immediately send approximately $9 billion to GM and $4 billion to Chrysler. It makes another $4 billion available in February when comprehensive restructuring plans from GM and Chrysler are due to the government.
Additional details call for workers not only to adjust wages and work rules but also give up for good the controversial Jobs Bank. The UAW suspended the program earlier this month.
It also orders the companies to issue warrants, or preferred stock, to the government, as well as limit executive pay and eliminate corporate air travel services. Wagoner and Mulally already have agreed to work for $1 and both companies are divesting their aircraft. The plan also calls for a “presidential designee” to oversee restructuring.
Bush calls the situation “difficult” and one that questions the proper role of the government. He says the government should not “undermine the private enterprise system,” but at the same time it must “safeguard the broader health and stability” of the nation’s economy.
Bush says his plan strikes a balance necessary in the current economic crisis.
“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 auto makers,” he says during a press conference broadcast on C-SPAN. “In ordinary economic circumstances, I would say this is the price failed companies must pay and I would not favor intervening.
“But these are not ordinary circumstances,” he adds. “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.”
Bush previously opposed helping Detroit’s auto makers, but as the economy spiraled into a deep recession his administration reached a deal with Washington Democrats to tap loans from last year’s Energy Security and Independence act meant to help Detroit retool factories for advanced propulsion vehicles.
But led by Southern Republicans Richard Shelby of Alabama and Bob Corker of Corker Tennessee, the plan was shot down in the Senate because it lacked wage concessions from the UAW.
The action taken by Bush today would pull the money from the $700 billion Wall Street bailout, a route favored by the industry and Democrats when Detroit began its appeal to Washington last month. Using that money as loans to Detroit means the first $350 million of the Wall Street bailout is gone and the U.S. Treasury must seek approval for the second installment.
In the hours after Bush’s announcement it also remained unclear how the UAW may react to a call for wage cuts. The union already agreed to wage cuts with last year’s national contract and last week’s failure in the Senate reportedly came after Corker could not convince the UAW to such concessions.
Rep. John Dingell (D-MI) praised Bush for the assistance but railed over a double standard between workers and executives.
“We all want to see the Big Three restructure and be competitive in the future, but it is irresponsible during a time of economic crisis for the White House to insist that workers take further wage cuts on top of the historic concessions they have already made,” he says in a statement, adding that executives running financial companies have not been subjected to pay cuts.
“I strongly urge President-elect Obama to revisit this issue as his first priority upon being sworn in, and to ensure that assistance to the auto makers is provided in a way that is fair to working Americans,” Dingell says.
The nation’s auto dealers, imperiled by the credit crunch, also applaud the Bush plan.
"This is the first step toward restoring consumer confidence," National Automobile Dealers Assn. Chairman Annette Sykora says in a statement.
"When you have the government declaring its confidence and commitment to U.S. auto manufacturers, it helps reassure the American public that domestic auto makers will be around for the long term," she says. "This sends a clear message: Consumers can now consider any car from any manufacturer with confidence."
– with Byron Pope and Eric Mayne