Detroit's Holiday Package

President Bush's deal with GM and Chrysler might work, if Barack Obama enforces it as president.

CHRISTMAS HAS come early for General Motors and Chrysler. Yesterday, the Bush administration pledged up to $17.4 billion for the two distressed carmakers -- enough money to save them from bankruptcy. Actually, the cash comes not as a gift, but as loans, with strings attached. Still, it does give GM and Chrysler a second chance at survival, and that's more than they got from Congress, which adjourned last week, unable to agree on a bailout bill.

This is not an optimal result. After years of substandard performance, the U.S. auto industry had itself to blame for most of its problems, and in normal times the two companies should have been left to the tender mercies of a bankruptcy court. To finance the bailout, the administration dipped into the Troubled Asset Relief Program, a $700 billion pot of money intended to shore up the financial sector. It sets a troubling precedent to use TARP to rescue not only a specific industrial sector but selected companies in that sector.

But the only thing worse than the administration's plan would have been doing nothing. These are anything but normal times. As the U.S. and world economies spiral downward, the collapse of GM and Chrysler could have crippled many of their suppliers and possibly Ford -- and even could have endangered the U.S. operations of Asian and European companies. It was worth trying to avoid this economic shock as long as the government used its leverage to exact drastic changes in the way the two companies and their factory employees' union, the United Auto Workers, do business.

On this score, the Bush administration seems to have struck the right balance, requiring the companies, their bondholders and the UAW to make painful but necessary sacrifices in return for the money. Specifically, GM and Chrysler must convert two-thirds of their debt to equity and swear off bonuses and other perks such as corporate jets; the union will have to take half of scheduled retiree health fund payments in stock rather than cash, renegotiate work rules and accept pay and benefits no higher than nonunion workers by the end of 2009. UAW President Ronald A. Gettelfinger blasted the latter provision; House Financial Services Committee Chairman Barney Frank labeled it "an unfair assault" on working people and called on President-elect Barack Obama to undo it once he takes office.

This is not terribly convincing, economically or morally. No, wage equalization won't solve all of the industry's problems, but it will save companies about $800 per vehicle, at a time when every little bit helps. That doesn't seem unfair in return for saving thousands of jobs that would still provide $45 an hour in wages and benefits, as opposed to about $28 for the average worker-taxpayer.

The president-elect himself struck a rather different note, urging all stakeholders to "make the hard choices necessary to achieve long-term viability." Sticking to that position, despite the inevitable pressures from both management and a union to which he and his party are deeply indebted, will require Mr. Obama to make some hard choices of his own.