President announces rescue plan for U.S. autos
President announces rescue plan for U.S. autos
U.S. automakers would get a total of $17.4 billion in short-term financing
WASHINGTON - The Bush administration came to the rescue of the troubled U.S. auto industry Friday, offering $17.4 billion in loans in exchange for concessions from carmakers and their workers.
"Allowing the auto companies to collapse is not a responsible course of action," President George W. Bush said. He said that a bankruptcy was unlikely to work for the auto industry at this time and would deal "an unacceptably painful blow to hardworking Americans" across the economy.
An official said $13.4 billion of the money would be available this month and next, $9.4 billion for General Motors Corp. and $4 billion for Chrysler LLC. Both companies have said they soon might be unable to pay their bills without federal help. Ford Motor Co. has said it does not need immediate help.
Bush said the rescue package demanded concessions similar to those outlined in a bailout plan that was approved by the House but rejected by the Senate a week ago. It would give the automakers three months to come up with restructuring plans to become viable companies.
If they fail to produce a plan by March 31, the automakers will be required to repay the loans, which they would find very difficult.
"The time to make hard decisions to become viable is now, or the only option will be bankruptcy," Bush said. "The automakers and unions must understand what is at stake and make hard decisions necessary to reform."
Bush's plan is designed to keep the auto industry running in the short term, passing the longer-range problem on to the incoming administration of President-elect Barack Obama.
"The American people want the auto companies to succeed, and so do I," Bush said.
The bridge loans could stave off the prospect of an “orderly” bankruptcy, one option being considered by the U.S. government after more than a month of wrangling.
Both GM and Chrysler have been forced to idle plants and lay off thousands of workers across North America as they try to shore up cash and have warned they could face bankruptcy without federal assistance.
No automakers have been spared in the brutal global sales slump.
Japan’s Toyota Motor Corp could report its first annual parent-only operating loss in 71 years in the year to end-March, and may issue a profit warning at a scheduled year-end news conference on Monday, Japanese media reported.
Toyota, which declined to comment on the reports, last posted an operating loss in its first year of operation in 1937/38.
Automakers everywhere are under huge pressure to cut costs as a global recession and tight credit strangle demand, and Japanese carmakers are feeling the extra pinch from a strong yen.
In perhaps the strongest protest since the dollar soared to a 13-year high recently, Honda Motor Co CEO Takeo ***ui warned a strong yen would cripple Japanese industry and trigger mass layoffs, forcing the automaker to shift production offshore if it persisted.
“If the government is saying, ’We don’t care about the export industry’, then that’s fine — we’ll act accordingly,” ***ui said in a group interview.
Good money after bad
Even without currency pressures, U.S. automakers are bleeding cash, raising the prospect of a bankruptcy that would severely disrupt the entire industry, add to growing jobless lines and deepen a global economic slowdown.
In a pair of interviews on Thursday, President Bush said he was concerned about the impact a “disorderly bankruptcy” might have on markets and the economy.
“I’m also concerned about putting good money after bad,” Bush told C-SPAN. “And, therefore, it’s going to be very important that whatever we do, that there be a plan that the autos — that would be management as well as dealers as well as labor —- show how they could be viable for the future.”
In further bad news, the Wall Street Journal reported that bond fund Pacific Investment Management (Pimco) had turned down a debt-exchange offer from GMAC LLC, owned 49 percent by General Motors Corp, threatening the finance company’s bid to qualify for government funds as a bank.
One remaining uncertainty is where an emergency federal bridge loan would leave Chrysler, widely considered the weakest of the big three U.S. automakers.
Chrysler Chief Executive Bob Nardelli said last month the privately held automaker needs both taxpayer-backed loans and an alliance with one or more automakers to survive.
More recently, Nardelli has said the automaker could restructure to emerge as a stand-alone competitor, but most analysts are skeptical of that because of Chrysler’s heavy reliance on the deeply depressed U.S. market and its inability to fund new vehicle development programs.
Cerberus Capital Management, the private equity firm that bought 80 percent of Chrysler from Daimler AG, has retained advisors to study a range of options for the No. 3 U.S. automaker, including selling off its most valuable assets, including its Jeep brand and its minivan line.
From Friday, the No. 3 U.S. automaker will be shutting all 30 of its plants for at least a month in order to keep inventories of unsold vehicles from building further.
Both GM and Chrysler have said a bankruptcy filing is not an option they would chose because of the risk that it would drive more consumers away from their brands.
The Detroit-based automakers have also said a bankruptcy filing by one could topple suppliers and endanger the remaining two companies because of the overlap in their key parts suppliers.
Ford Motor Co is not seeking emergency loans but has asked the government to consider standby credits it could draw on if its own position worsens more than expected in 2009 or if Chrysler or GM were to fail.
Both GM and Chrysler have been hard hit by the sudden tightening of credit since September, a development that has made it harder for their dealers to carry inventory and for consumers to find financing.
GM’s sales in the U.S. market dropped 41 percent in November and are down 22 percent so far this year, while Chrysler sales have dropped 28 percent.
I liked what Olbermann said about this yesterday. "Great idea. Let's put the guy who saved New Orleans after Katrina in charge of saving the auto industry." :rofl:
Btw, all you left wing liberals will love it when Obama "gives" more to the automakers when he takes office. (it's a loan guys... unlike AIG)
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