Bush OKs $17.4B auto bailout, with strings attached

WASHINGTON — In reluctantly tossing a $17.4 billion government lifeline to General Motors and Chrysler on Friday, President Bush ensured that the automakers would not fail in coming weeks, sparing the economy and his own legacy another potentially devastating blow. But his action leaves most of the tough decisions about the U.S. auto industry's future to President-elect Obama.

The conditions Bush attached to the emergency loans, such as requiring unions to accept wages and benefits comparable to those at U.S. factories run by foreign automakers, were largely nonbinding and thus subject to change by the next president.

That could mean a far different future for U.S. automakers from what many analysts have been predicting.

Obama consistently has echoed Bush's call for major restructuring by U.S. automakers to ensure their long-term viability in a changing global marketplace.

With his strong environmental and pro-labor stances, however, Obama might have a much different view of what constitutes viability than his predecessor.

For example, in his energy plan, Obama has called for keeping the U.S. auto industry alive and for making it a world leader in fuel-efficient, environmentally friendly vehicles.

"This is clearly a temporary measure," Mark Oline, an analyst with the credit rating enterprise Fitch Ratings, said of the bailout. "We expect the agreement will be significantly reworked once the new Congress and the new administration take office."

U.S. automakers have begun shifting production from gas-guzzling trucks to smaller, fuel-efficient cars and investing in technology to produce hybrid and electric cars. But those changes have been slow, and the recession and credit crunch hammered the already weakened GM, Chrysler and Ford.

GM and Chrysler have said they needed a total of $14 billion by March 31 or they could face bankruptcy. While it has not asked for immediate government assistance, Ford said it welcomed the assistance to GM and Chrysler because of the interdependent nature of the industry and its vast network of suppliers and noting a failure by one or both competitors could endanger it, too.

In an indication of what might lie ahead, the United Auto Workers (UAW) union and some Democratic lawmakers were calling on Obama on Friday to change some of the conditions.

Obama called the bailout a "necessary step" and warned GM and Chrysler executives not to squander the chance to remake their companies because "The American people's patience is running out."

But, at a news conference in which he stressed the importance of increasing wages throughout the economy, Obama said workers shouldn't be the only auto-industry stakeholders asked to take "painful steps."

"I just want to make sure that when we see a final restructuring package, that it's not just workers who are bearing the brunt of that restructuring," Obama said.

In Detroit, Rick Wagoner, GM's chairman, said the loans would allow the automakers to pay their bills and prevent a financial crisis from spreading through the industry's suppliers and dealers.

Wagoner, who has been GM's chief executive for eight years, added that he had no plans to step aside. "Do you think I would have gone through what I've gone through in the past two months, if I didn't want to stay?"

His reaction was echoed at Chrysler. "We intend to be accountable for this loan, including meeting the specific requirements set forth by the government, and will continue to implement our plan for long-term viability," Chrysler's chairman, Robert Nardelli, said in an e-mail to employees.

The bailout Bush announced is missing two major elements drawn from legislation that failed in Congress: a "car czar" to administer the program and a requirement that Cerberus Capital Management, the private-equity firm that owns 80 percent of Chrysler, be held liable for any losses experienced by the taxpayers.

Instead, Cerberus on Friday said it would give the first $2 billion to the government if it ever sold Chrysler Financial, the company's financing arm.

GM and Chrysler outlined a turnaround program calling for deep cuts in operations and expenses in their original requests to Congress for government loans.

But the White House appears to be expecting more than conventional restructuring strategies. Bush called for the companies to extract major concessions from their bondholders, creditors, dealers, suppliers and the UAW.

Under the White House plan, the Treasury Department will immediately provide $13.4 billion in short-term loans to GM and Chrysler from the first half of the $700 billion Wall Street bailout fund, known as the Troubled Asset Relief Program, or TARP. An additional $4 billion would be available Feb. 17, assuming Congress approves the second half of the $700 billion fund. GM will get about $9.4 billion of the initial allocation, while Chrysler will receive $4 billion.

GM and Chrysler must attain long-term financial viability by March 31, Bush said, or they will have to repay the loans immediately. The key to financial viability is for the companies to deliver restructuring plans by Feb. 17 showing they can achieve a "positive net present value."

The term is used in corporate budgeting to assess investments. It means the cash coming into a company must outweigh the cash flowing out, taking into account future debt obligations.

But the precise parameters for that calculation were unclear Friday. Documents released by the Treasury Department said the positive net present value must be calculated "using reasonable assumptions and taking into account all existing and projected future costs."

The auto companies also would be required to limit executive pay, eliminate "golden parachute" severance packages and sell their private corporate jets. While the loans are outstanding, the companies also would be barred from paying shareholder dividends.

News of the loans drew praise from auto dealers, who were worried a bankruptcy filing would scare away customers and worsen the bleak outlook for auto sales.

"When you have the government declaring its confidence and commitment to U.S. auto manufacturers, it helps reassure the American public that domestic automakers will be around for the long term," said Annette Sykora, head of the National Automobile Dealers Association, which represents 19,700 dealers nationwide.

Even with the emergency federal loans, the bankruptcy risk for all three companies remained "very high," said Gregg Lemos-Stein, a credit analyst with Standard & Poor's.

"These loans help near-term liquidity," he said. "But they do nothing to help the very weak demand for vehicles in the U.S."

Information from The New York Times is included in this report.