White House Green Lights Automaker Bailout

President Bush Announces $17B In Loans; Big 3 Hail Action While Union, Congressional GOP Have Gripes

(CBS/AP)  Citing imminent danger to the national economy, President Bush ordered an emergency bailout of the U.S. auto industry Friday, offering $17.4 billion in rescue loans and demanding tough concessions from the deeply troubled carmakers and their workers.

Detroit's Big Three cheered the action and vowed to rebuild their once-mighty industry, though they acknowledged the road would be anything but smooth as they fight their way back from the brink of bankruptcy.

The autoworkers union complained the deal was too harsh on its members, while Bush's fellow Republicans in Congress said it was simply bad business to bail out yet another big industry.

Mr. Bush, who signed the massive $700 billion rescue for financial institutions only this fall, said he was reluctant to approve yet another government bailout of private business. But he said that allowing the massive auto industry to collapse in the middle of what is already a severe downturn "could send our suffering economy into a deeper and longer recession."

Speaking at the White House, he also said he didn't want to "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 administration action but 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."

Mr. Obama will be free to reopen the arrangement from the government's side if he chooses, and the head of the United Auto Workers said the union would be appealing to the new president and the strongly Democratic new Congress on that subject.

Mr. Obama, commenting in Chicago as he named more economic Cabinet members, was noncommittal on possible changes. But he said he would "make sure that when we see a final restructuring package that it's not just workers who are bearing the brunt."

Stock prices rallied on Wall Street after Bush's announcement but faded late in the day, and the Dow Jones industrials declined 25.88 points. GM shares, however, jumped 22.7 percent and Ford shares 3.9 percent. Chrysler is not publicly traded.

Some $13.4 billion of the rescue money will be available this month and next - $9.4 billion of it for General Motors and $4 billion for Chrysler LLC, the two auto giants that have said they could be facing bankruptcy soon without government help. GM is slated to receive the remaining $4 billion in loans after more money is released from the financial rescue account. Ford says it doesn't need federal cash now but would be badly damaged if one or both of the other two went under.
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. Mr. Bush said the companies' workers should agree to wage and work rules that are competitive with foreign automakers by the end of next year.

An assembly line worker at GM now makes $29 an hour - equal to what a Honda worker here earns and slightly less than a Toyota employee makes, reports CBS News correspondent Anthony Mason. But when you add in benefits, pensions and legacy costs, GM, which has more than 430,000 retirees, pays its average worker $69 an hour -- $20 more than Toyota.

Even with this loan, analysts say, the automakers have to take drastic steps

"That means a lot less jobs. Instead of laying off 10 to 15,000 a month, it's gonna be 25, 30,000 a month," economist Mark Zandi told Mason.

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Click here for details of the auto bailout
CNET's Brian Cooley: The "Detroit's A Loser" Myth
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

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Mr. Bush also 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.

Underscoring the automakers' peril - and how close the bailout is cutting to the edge - GM Chief Financial Officer Ray Young said the company expects to have the first money from the government by Dec. 29, just in time to pay suppliers.

CEO Rick Wagoner said, "The timing was specifically aligned with the timing we said we needed in order to make our payments on a timely basis, so we're right on schedule there."

The deal also calls for two-thirds of the automakers' debts to be converted to stock in the companies.

Also, Chrysler, GM and Ford were to pay billions into UAW-administered trust funds that will take over paying health care bills for hundreds of thousands of retirees on Jan. 1, 2010. The trusts, called Voluntary Employees Beneficiary Associations, were to last at least 80 years.

But if half the cash is swapped for stock, the trusts might not last that long if the value of the shares declines. Swapping stock for cash payments helps the cash-starved companies, though, because they have more money to spend on operations.

Bondholders may be left with a take-it-or-leave it proposition with the government requiring them to exchange two-thirds of their holdings for stock. But they, too, could try to negotiate with the Obama administration, said Pete Hastings, an auto industry corporate bonds analyst with Morgan Keegan & Co. in Memphis, Tenn.

If they don't take the deal, GM could wind up in bankruptcy and the bondholders would get little or nothing, Hastings said.

Though auto stocks rose on Friday, the companies' stockholders aren't out of the woods.

Provisions in the bailout agreement will force GM to produce more shares, diluting the value of its stock several times over, said Efraim Levy, a senior auto industry analyst with Standard & Poor's.

There's no way the automakers will be profitable next year, said Levy. Things could be different in 2010 if the market rebounds and cost cuts kick in, he said.

Meanwhile, Treasury Secretary Henry Paulson said Friday that 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.

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.

Friday's rescue plan retains the idea of a "car czar" to make sure the 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.

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 their vehicles.

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 said the initial injection of capital would help the company get through its cash crisis and give it a push toward eventually returning to profitability. He said Chrysler was committed to meeting the conditions set by Bush in exchange for the money.

Though Ford didn't seek short-term aid, company President and CEO Alan Mulally said, "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."

Reaction on Congress was mixed. House Speaker Nancy Pelosi, D-Calif., said the bill gives U.S. automakers a chance to be "viable and competitive" but added the proposal "singles out workers and clearly puts them at a disadvantage."

House Republican leader John Boehner called the 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, said a Chapter 11 bankruptcy reorganization, not loans rewarding decades of mismanagement, would have been a better decision.

Grover Norquist, president of the Americans for Tax Reform, sent a one-word letter to Bush that said in huge letters: "No."

[usadvisor101]

Posted by usadvisor101 at 12:01 PM : Dec 20, 2008

And after 20 Jan 2009 we get to blame Obama for everything.......whats your point?

Posted by hillaryin016 at 12:09 PM : Dec 20, 2008


so for you guys its back to rove101, more smear,fear and lies?

dont worry, the rest of the world knows who made this mess and as much as the deranged-desperate reich wing repugnirants, want to blame congress who was deliberatley missled and lied too,by bush,cheney,wolfowitz and rummy.

the facts remain that this all happened on mr. "not on my watch" blunder brain bush. and the world openly admires and realizes the difficult task times "man of the year" obama faces :]

[usadvisor101]

Yah, but they blame Bush... LOL!


Posted by txgrouch2008

And rightly so - he was the idiot that decided to engage in a full-on war, and kept at it even when he had evidence of NO WMDs. If you support Bush''''s actions, you''''re a traitor to our world image.


Posted by slownewsdaze at 09:28 AM : Dec 20, 2008

texastrailertrash must never talk to anyone overseas.

if he did he would realize how much his republican liars and bush are despised world wide.

the entire world hates them, meanwhile clinton is in huge demand, collecting over half a billion for his foundation. clinton will be remembered as a great president,respected worldwide.

bush and his drones,like txgrouch will be remebered as the ones whom have ruined america. it took 8 years for these morons to ruin this country,its financial system and it economy.

clearly wordwide and here,bush is regarded as THE WORST PRESIDENT EVER !!!!

EVER !!

[usadvisor101]

look at txgrouch, the right wing texas trailer trash trying to blame clinton for all of bush past mistakes......HA,HA,HA,HA,HA,HA !!

WHAT A BRAINLESS LIAR !!

it was bush that ignored his own lawyers, that tried to tell him he did not have solid proof.
BUSH had powell(not clinton you dope) present three reasons to the united nations, as to why we should invade iraq
1) ties to alqeada- which even the pentagon later reported "they did not exist in iraq until after we invaded"
2)niger uranium- which we all know what happened there,and we can rest assured you will distort those events.
3) wmds- they BUSH, told us and gave us drawings on mobile wmd labs, from a reliable(even though the german intel told us to be leary of it-opperative named curveball) iraqi scientist named curveball, whom turned out to be a liar, like you txgrouch.

then we seen a lyinsack named wolofowitz tell our generals and pentagon officials,liek white and shinseki,"they dont know what they are talking about!!!, we can easily do it with 150,000 troops.

yeah we remember all your neocon lies like....."greeted as liberators" "alqeada training camps" "throwing flowers at us" " mission accomplished" t
"the streets of baghdad or safe"

it was all bushs fault everyone knows it, quit lying you old loser bust out !!

[soose95]

I have no intention of buying an auto from the Big 3? Their products have been inferior for years! If Washington & Detroit expect me to ever invest in an American car, they need to respect me enough to provide a safe, energy efficient vehicle. This recession has been a major reality check for me. If I can count my pennies wisely, so can the Big 3! And, if they don''t, I will continue to buy from Toyota.

[win4usa]

Boycott so the UAW and Washington will hear us: NO BAILOUTS FOR ANYONE!

[troutfisher4]

Well, if he could quit smoking he may actually gain some weight. Michelle has been bugging him to quit for some time.

Posted by firehose12




Very sweet of you to care.

[grandesign]

They are in fact a parasite sucking the financial life from the companies. Up to now the companies have been virtually powerless to do defend themselves from the greed.
Posted by quandryron at 09:34 PM : Dec 19, 2008

I reserve this opinion for those highly paid -good for nothing - corporate decision makers who brought this upon America with their idiotic worste business practices.

[grandesign]

offering $17.4 billion in rescue loans . . . and demanding tough concessions (wink wink) . . . from the deeply troubled carmakers and their workers.

We are in no position to demand anything.

[firehose12]

Baboons don''t have working appendixes.

Posted by william545 at 07:37 PM : Dec 19, 2008


Well, if he could quit smoking he may actually gain some weight. Michelle has been bugging him to quit for some time.

[firehose12]

Bush had to make a decision. And he did.

Will the taxpayer ever get his money back? Or does some unemployed guy off himself because the aid didn''''t come to him?

Or does a member of a future generation curse Bush for spending his money without his consent?



Posted by AtheismWins at 09:43 PM : Dec 19, 2008


This issue goes directly to Obama. 3 months of money puts it squarely in the lap of Obama & Democratic Congress.

My opinion ?

They (Obama admin) will spend easily over 100 billion on junk USA cars and bad attitude UAW labor.....then decide chapter 11 is the answer.

Politicians for you.

Stay tuned

[atheismwins]

Bush had to make a decision. And he did.

Will the taxpayer ever get his money back? Or does some unemployed guy off himself because the aid didn''t come to him?

Or does a member of a future generation curse Bush for spending his money without his consent?

[quandryron]

Ford may be the big winner at the moment. With the governments involvement with GM and Chrysler I am personally hoping that they will be able to influence the union contracts into something a bit more feasible. The union has negotiated the car companies into a corner by forcing nonproductive labor into the factories. They are in fact a parasite sucking the financial life from the companies. Up to now the companies have been virtually powerless to do defend themselves from the greed. Both union and company are both greedy entities for certain.
With government intervention perhaps they can force the unions of both the GM and Chrysler factories into at least accepting paycuts or find ways for the ''skilled'' employee classes from sitting on their butts for days at a time collecting proportionately higher wages than th e remainder of the US workforce.

[hetup-2009]

Who cares about the auto industry? I sure don''t, they can freeze to death in the dark.

[whitemale08]

I love how Bush tried to give the impression that at least he was ''sincere'' in all of his decisions as President

but today no one should doubt that every decision the decider makes is allways ''political''.

He asked himself: "Do I want to be responsible for confirming the Bush/Hannity/Limbaugh-Depression or that I''m a ''principled'' and never waiver from the so-called principal of ''free-markets''?

Bush never cared one way or the other, he''s just a politician who never takes responsibility for if he did he would admit that he sacrificed the auto-industry to catch Saddam Husseing who had no WMD''s but threatened his dad.

[jsd330]

If the auto industry is in danger of collapsing, how come Ford doesn''t have their hands out for free money? Whats wrong with Ford?
posted by random radar
Because Ford has been downsizing for the past 15 yrs. and they only have two divisions Ford & Lincoln Mercury, they have fewer employee''s and their plants run more efficiently. they also sold Land Rover and Volvo, because they were losing money.Ford has been pretty much making the right moves at the right time. Bill Ford is really into enviromental issue''s, so I''m sure Ford will be a leader in Hybrid vechicals. To bad he own''s the Detroit Lions, he might have to look for a bailout for them.

[windmaster12]

Its been reported that all these Federal bailouts, ie. (Corporate Handouts)-
Including the recent Wall St. Financial, Welfare payments Paulson just doled out-
Would equal over $60,000 each, if given to each, and every, man, woman, and child in America.

Just think ----if the Gov''''t decided to instead give each citizen a Stimulus check for $60,000 -
With no Strings attached.
I imagine the economy would turn red hot ----- Fast!!!
In Fact Overnight!!!!

Instead, Paulson threw our money down the black hole of Corporate shenanigans --
Purchasing Toxic assets -Giving Billions to undisclosed Corporations,
Some of whom are hoarding the money--
Buying other faltering institutions - and in some cases
Awarding Golden parachutes, and bonuses, to undeserving executives who ran their companies
Into the ground!!!

Its Time for a new movement .
A true grass roots Movement!!!!

Lets Call It ---

"Money for the People"!!!

Everyone Call your Representative today and ask them to
Give each Citizen a $60,000 Untaxable Economic Stimulus check!!!!!!

Recession ? ---- What Recession !!!!

That was Yesterday!!!!

Do it Today!!!!

Stop letting Wall Street Incompetents be Rewarded for Failure!!!

Its Our Money and we want it Now !!!!!!

[carpriddler]

A group of conmen - common criminals package a fraudulent product backed and sold by some of the largest institutions on earth and it''s the customers fault! Most of the wanks that think they have it together have never been off the t.i.t a day in their life. Over 50% of the 1 percenters are the idiot sons of the idiot sons, and one of them just gave 17 billion of the working mans money to another group of idiots.

[shanev137]

Bush is the worst Socialist president we''ve ever had.

[chitownfire1]

Incredible! We need to give the Nobel Peace prize to the 4.1 Millions Americans that Signed SubPrime Jumbo Mortgages in the last 8 years. They geniously messed up the World Economy.


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Posted by lovegetpeace

Yeah, its amazing how the whole mortgage mess seemed to start a domino effect on nearly every industry.

[lovegetpeace]

Posted by william545 at 07:19 PM : Dec 19, 2008

China is a good example of what we should follow.