12/28/2008

News / Bush Announces Loans for General Motors, Chrysler Emergency loans provide reprieve from immediate bankruptcy

By Phillip Kurata
Staff Writer

Washington — President Bush has announced $17.4 billion in emergency loans to two ailing U.S. automakers — General Motors Corporation and Chrysler LLC — to stave off bankruptcies that threatened to send shock waves through an already ailing U.S. economy.

The president said General Motors will receive $9.4 billion and Chrysler will receive $4 billion in December and January. Another $4 billion will be made available to the auto makers in February, when he expects Congress to release the second half of the $700 billion financial rescue fund approved in October to help failing financial institutions.

Bush justified the loans on the grounds that letting the two automakers go bankrupt “would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry.”

“It would worsen a weak job market and exacerbate the financial crisis. It could send our suffering economy into a deeper and longer recession,” Bush said.

Ford Motor Company, a third beleaguered U.S. auto maker, has suffered steeply declining sales and profits but has indicated it will survive 2009 without bailout funds.

The president faulted Congress for not approving a rescue plan for the auto industry earlier in the month and said its inaction forced him to tap into the emergency package for financial institutions that was passed in October.

“This means the only way to avoid a collapse of the U.S. auto industry is for the executive branch to step in,” Bush said.
The president left open the possibility of “orderly” bankruptcies if the auto makers are not able to come up with viable, long-term restructuring plans by March 31.

MARKETS APPROVE

Financial markets reacted favorably to the president's announcement, with all the major indices rising several percentage points December 19.

Phil Orlando, chief equity market strategist at Federated Investors, was quoted in Yahoo News as saying, “It's a marginal positive. It prevents the collapse of a very high profile industry less than a week before Christmas. That's not to say that these guys won't collapse next March, but it takes it out of the headlines now.”

Some analysts have said in the media that the collapse of General Motors and Chrysler could result in as many as 3 million U.S. job losses. The financial crisis already has sent unemployment to levels not seen in years, as the U.S. economy shed more than 500,000 jobs across all sectors in November, the Labor Department reported.

The president said that, in return for the loans, all involved parties in the auto industry — management, unions, creditors, bondholders, dealers and suppliers — will have to make “meaningful” concessions.

He said retirement and compensation plans will have to be adjusted so General Motors and Chrysler will be able to compete with foreign auto makers that have major operations in the United States. “The automakers and unions must understand what is at stake and make hard decisions necessary to reform,” Bush said.

Immediate reaction from the two automakers indicated they do understand what is at stake.

General Motors released a statement that said the emergency loans will allow the company “to accelerate the completion of our aggressive restructuring plan for long-term sustainable success. It will lead to a leaner, stronger General Motors.”

Chrysler chief Robert Nardelli said in a statement the loans will enable Chrysler “to pursue its vision to build the fuel-efficient, high-quality cars and trucks people want to buy, will enjoy driving and will want to buy again.”
http://www.america.gov/st/econ-english/2008/December/20081219154944cpataruk0.689541.html

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