In the early going, investors cheered the government's pledge to provide General Motors Corp. and Chrysler LLC with short-term financing and sent the Dow Jones industrial average up as much as 182 points. But stocks turned lower at midday, recovered in the afternoon, and then lost ground again in the last hour of trading as initial enthusiasm over the bailout waned.
The decision to provide emergency help to carry the struggling industry into the new year comes after a $14 billion bailout for the automakers failed to make it out of the Senate last week.
The companies' cash flows have been dwindling to a slow trickle due to the weak economy, slumping sales and the credit crunch.
The White House said it will let GM and Chrysler draw $13.4 billion in short-term financing, and another $4 billion will be added later. But it attached conditions that must be quickly met GM and Chrysler must prove viability, defined as positive cash flow and the ability to pay back government loans, by March 31. Ford Motor Co., meanwhile, is not asking for short-term assistance, but its CEO predicted the aid will stabilize the broader industry.
GM CEO Rick Wagoner said the company had much work ahead, but he was confident it could reinvent itself with the government help.
Some analysts expressed doubts.
"I think that there's a lot of skepticism about how much real reform we're likely to see, particularly at GM, given the parameters under which the loans have been made," said Alan Gayle, senior investment strategist at RidgeWorth Investments. "There is a lot of skepticism about whether GM is prepared to do what needs to be done."
Still, the government's move staved off, for the time being, a major bankruptcy that could have sent a debilitating blow to the economy and the labor market.
Investors have been concerned about the job market ramifications of a possible bankruptcy filing by an automaker like GM or Chrysler LLC, which some analysts said could result in up to 3 million U.S. job losses. The government lost more than half a million jobs in November, and the Labor Department said Thursday that new claims for unemployment remained well above 500,000 last week. When unemployment rises, spending declines and credit deteriorates.
The White House's action Friday "prevents the collapse of a very high profile industry less than a week before Christmas," said Phil Orlando, chief equity market strategist at Federated Investors. "That's not to say that these guys won't collapse next March, but it takes it out of the headlines now, and takes the threat of an auto industry default off the table until next spring."
Click here for details of the auto bailout
Click here to read the full text of President Bush's announcement
Click here to see details of General Motor's bailout terms
Click here to see details of Chrysler's bailout terms
GM shares jumped 83 cents, or 22.7 percent, to $4.49, while Ford shares added 11 cents or 3.9 percent to $2.95. Chrysler is not publicly traded.
According to preliminary calculations, the Dow Jones industrial average fell 25.88, or 0.30 percent, to 8,579.11. The Standard & Poor's 500 index rose 2.60, or 0.29 percent, to 887.88, while the Nasdaq composite index rose 11.95, or 0.77 percent, to 1,564.32.