White House agrees to long-awaited rescue for carmakers
The White House has agreed to a 13.4-billion- dollar emergency loan to keep the iconic US car industry alive and avoid an even deeper economic recession in the United States, President George W Bush announced Friday.
The federal funds come with tough conditions. General Motors Corp and Chrysler LLC will have to prove they can return to viability or the money could be withdrawn again by March 31, likely leaving no option other than bankruptcy, dpa reported.
The loan provides GM with 9.4 billion dollars and Chrysler with 4 billion dollars over December and January. GM could get another 4 billion dollars in February.
"In the midst of a financial crisis and a recession, allowing the US auto industry to collapse is not a responsible course of action," Bush said in a statement at the White House.
GM and Chrysler, who had warned they faced collapse without access to federal aid, welcomed the government's decision and promised to use the funds to enact the painful restructuring moves demanded as a condition for the loan.
"Today's actions are a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers," president-elect Barack Obama said.
In a statement, Obama said that the carmakers "must not squander this chance to reform bad management practices and begin the long- term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it."
US stocks climbed more than 2 per cent on the long-awaited announcement, led by carmakers and their parts suppliers. The White House had become the carmakers' only lifeline after efforts to loan them the funds collapsed in Congress last week.
Car sales have plunged some 40 per cent in the past few months as consumers struggled to get loans in the current financial crisis, adding to the woes of an industry that has already been struggling to keep up with more fuel-efficient and cheaper foreign competitors.
"Our focus now turns to fully and rapidly implementing" the company's restructuring plan, GM chief executive Rick Wagoner said. "We know we have a lot of work in front of us to accomplish this plan."
Ford Motor Co was the only one of the so-called Big Three that had said they can survive without the federal funds. Both GM and Chrysler had planned to shutter manufacturing plants in the coming months to conserve cash.
Bush said the failure of one of the US carmakers would deal an "unacceptably painful blow" to the world's largest economy and leave president-elect Barack Obama with a massive crisis on his hands just days into the new administration.
The tough restructuring moves at GM and Chrysler will include slashing labour costs to the levels of foreign competitors and other concessions if they hope to avoid bankruptcy in early 2009.
Both are expected to present a new business plan by February 17 and have it in place by the end of March to keep the bail-out alive, the White House said.
"I'm highly confident we'll be able to meet that test," Wagoner said.
The funds will come from the 700-billion-dollar financial rescue package approved by Congress in October, after attempts to provide the car industry with a separate aid package were blocked by Republican legislators last week.
Bush had previously refused to use funds from the financial rescue package, but said Congress' failure to act had left him with no other choice.
"The American people want the auto companies to succeed, and so do I," Bush said.
Treasury Secretary Henry Paulson will manage the bail-out until Obama's administration takes office January 20.