Aid in Hand, Clock Ticks for Detroit
With $17.4 Billion, a Mandate: Restructure by March or Go Bankrupt
Saturday, December 20, 2008
President Bush put the government into the daunting role of industrial oversight yesterday by grudgingly throwing a $17.4 billion lifeline to General Motors and Chrysler, a politically sensitive mission that President-elect Barack Obama will soon inherit.
The emergency loans mark the first time the administration has extended its bailout to companies outside the financial sector and will head off imminent bankruptcy for the ailing Detroit automakers, which have said they lack enough cash to make major payments due to suppliers by the beginning of January.
But while Bush demanded deep cuts in union wages and benefits and broad corporate restructuring as conditions for the loans, analysts say that the overhaul of the auto industry will require more negotiations, more time and more federal money. "The auto bailout saga does not end here," Itay Michaeli, a Citigroup analyst, said in a report.
The administration yesterday said it would give GM and Chrysler $13.4 billion immediately and another $4 billion in February if Congress approves and the companies meet targets for extracting concessions from unions and bondholders. The federal assistance will come from the $700 billion Troubled Asset Relief Program and could be exchanged later by the government for as much as a 20 percent stake in the companies.
Bush decided to go ahead with the bailout Thursday afternoon, White House sources said, triggering an all-night flurry of activity at the Treasury Department. Officials sent documents to company lawyers and financial experts in Detroit at 2:30 a.m. Friday; top GM executives said they did not sign the papers until four minutes before the president went on television to announce the deal. Even then, some details were unresolved, a White House spokesman said later.
"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 automakers," Bush said in the televised message from the White House. "Under ordinary economic circumstances, I would say this is the price that failed companies must pay -- and I would not favor intervening to prevent the automakers from going out of business. But these are not ordinary circumstances. 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."
In a news conference, GM chief executive G. Richard Wagoner Jr. said the loans would let the company develop "a blueprint for a new General Motors. . . . Our company helped build this country." Chrysler chief executive Robert L. Nardelli said in a news release that the company was "committed to meeting these requirements" and thanked the administration "for their confidence in the company."
Ford, the other member of Detroit's Big Three automakers, has said it does not need federal aid for now, but its executives have argued that a collapse of any of the companies could bring down the entire industry.
The terms dictated by the White House will take weeks if not months to be put into effect. The documents talk of ambitious "restructuring targets" that the companies should make their "best efforts to achieve" to avoid having the government call in the loans.
"This essentially does two things," said one person close to the negotiations between the government and the carmakers who spoke on condition of anonymity. "The first thing is it provides enough liquidity to forestall a bankruptcy filing. And the second thing it does is lateral the ball to Obama."
Transition officials for Obama described the Bush administration's effort as a "framework." They did not offer opinions on specific aspects of the deal because they were still reviewing the terms. Yet they noted that because the aid came by executive decision rather than through a law passed by Congress, Obama can alter terms once he takes office.
The White House restructuring targets ask much of GM and Chrysler stakeholders and require them to justify any failure to take these actions: