WASHINGTON - President Bush's decision to provide up to $17.4 billion in short-term loans should help General Motors Corp. and Chrysler L.L.C. avoid a short-term cash crisis, but it will force them to dramatically change how they operate - or face bankruptcy.
Bush offered targets for the companies yesterday, but not requirements, meaning that tough negotiations lie ahead among labor and auto company executives and officials in the incoming Obama administration.
Even if agreements are reached, the fates of the Big Three automakers - including Ford Motor Co., which says it doesn't need immediate help - could well be out of their control.
They need an end, or at least a thawing, to the deep credit freeze that has prevented consumers from obtaining car loans. Car loans usually are packaged and sold into a secondary market, a process called securitization, and these secondary markets have virtually disappeared, paralyzing all sorts of lending across the U.S. economy.
"The automakers will hemorrhage red ink until auto lending and leasing revives. Without credit, vehicle sales will, at best, remain at their current 10-million-unit annual sales pace," said Mark Zandi, chief economist at forecaster Moody's Economy.com.
"The Big Three share of these sales is less than five million units. Their break-even sales rate is closer to seven million units."
A conflicted Bush announced the aid package yesterday after days of deliberation.
"This is a difficult situation that involves fundamental questions about the proper role of government," he said. While government has a responsibility "not to undermine the private enterprise system," it also must "safeguard the broader health and stability of our economy."
The president will provide carmakers with $13.4 billion now and an additional $4 billion in February if necessary. The money will come from the Troubled Asset Relief Program, which Congress approved in October to help ailing financial institutions.
GM will get $4 billion immediately and $5.4 billion more Jan. 16. Chrysler will get $4 billion right away. The remaining $4 billion is to go to GM on Feb. 17, once restructuring plans are presented and Congress agrees.
President-elect Barack Obama, whose advisers were consulted on the package, issued a statement saying Bush's actions were a "necessary step" and warned at a Chicago news conference that "people's patience is running out, and they [the carmakers] should seize on this opportunity . . . to come up with a plan that is sustainable."
He didn't say whether he endorsed the specific goals that Bush spelled out in an eight-minute statement in the Roosevelt Room.
The president strongly suggested - but didn't specifically require - that the companies revamp their operations largely along the lines that congressional majorities endorsed last week before talks to craft legislation collapsed.
He said that companies should show positive net value by March 31 and that automakers "must meet conditions" that include putting their retirement plans "on a sustainable footing," persuading bondholders to convert debt into capital that companies need for immediate use, and bringing worker compensation in line with that of foreign-based automakers that have major U.S. operations.
The last point made congressional compromise talks last week implode. Senate Republican negotiators demanded that the United Auto Workers accept the same compensation as nonunion autoworkers by the end of 2009; the union and Democrats wanted a 2011 target. A White House fact sheet yesterday said negotiators should aim for Dec. 31, 2009.
Many Democrats and the UAW were optimistic yesterday that they could negotiate terms to keep the carmakers in business.
"This will keep the doors of America's factories open," UAW president Ron Gettelfinger said.
House Speaker Nancy Pelosi (D., Calif.) and House Financial Services Committee Chairman Barney Frank (D., Mass.) took a tougher line, saying provisions affecting workers troubled them. Frank dubbed the Bush plan "an unfair assault on working men and women, which could require them to accept a disproportionately large reduction in what is currently legally owed to them."
Analysts were virtually certain that at the end of March, even if they are declared "viable," carmakers will need more government aid; earlier this month, they were seeking $34 billion. Ford wanted a $9 billion line of credit.
"At the end of the day, all three companies are structurally so different," said Rebecca Lindland, the director of automotive research at forecaster IHS Global Insight, and all three face different challenges.
"The question is, by the end of March, will the argument that we're throwing good money after bad still be considered legitimate?" Lindland asked. "We'll know the answer to that at the end of the first quarter of 2009."
Some details of the
Bush administration's $17.4 billion rescue plan for the U.S. auto industry:
Automakers will get $13.4 billion in short-term financing from the Troubled Asset Relief Program, with an additional $4 billion
to be made available in February, contingent on drawing down the second portion of the TARP funds.
Auto companies must use the money to become financially viable.
If a company has not become financially viable by March 31, 2009, its loan will be called.
Auto companies must accept limits on executive compensation and perks.
Companies must allow the government to examine their books and records.
Auto companies must comply with applicable federal fuel-efficiency and emissions requirements.