WASHINGTON-Brushing aside Republican opposition in the House and Senate, President Bush endorsed a $17.4 billion plan Friday to bail out Chrysler and General Motors, with $13.4 billion available now and $4 billion in February. The other Big Three U.S. automaker, Ford, has indicated it can continue without government aid, but the other two are on the precipice of bankruptcy. The plan is designed to be a short-term fix for the industry, as Bush demanded the companies use the coming months to restructure.
"The only way to avoid a collapse of the U.S. auto industry is for the executive branch to step in," the president said.
The plan is nearly identical to the bridge loan legislation that recently passed in the House of Representatives but failed in the Senate due to Republican opposition. One difference is that Bush will appropriate funds to automakers from the Troubled Assets Relief Program (TARP), the $700 billion financial bailout package he signed into law in early October. During negotiations with congressional leaders about the auto bailout Bush had fought against any use of TARP funds for the auto industry, advocating instead using funds already available through an energy bill passed last year.
Congress' failure to take legislative action on that plan left Bush with only one real option for funding-money that was originally intended to buy up the troubled assets of financial institutions.
"It's a step we wish were not necessary," the president said.
With this action, the first installment of TARP bailout funds has been depleted, prompting Treasury Secretary Henry Paulson to request the second half-$350 billion-from Congress.
The Bush administration said earlier it would consider allowing Chrysler or GM or both to enter bankruptcy, but Friday Bush said in a recession, bankruptcy would not be a legitimate course of action. He added that the loans now might provide the companies a chance to enter a more orderly bankruptcy, where they could emerge with a greater chance of being profitable.
The incoming Obama administration will have to evaluate whether the two auto companies have returned to "viability"; Bush's plan requires the companies to prove their viability or pay back all federal funds by March 31, 2009.
Conditions for viability, according to Bush, include reducing debt, negotiating retirement benefits, and making wages more competitive with foreign automakers. However, the Bush administration will not be determining viability-that task will fall to the Obama administration.
President-elect Barack Obama commended the president's decision, calling it "a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers."
Chrysler in a statement released shortly after the announcement said "thank you" to the Bush administration and Treasury Department.
GM added in its statement that the loans would help the company become "leaner, stronger."