By Mark Huffman
ConsumerAffairs.com
December 19, 2008
In the end, the pressure to prevent the collapse of the U.S. auto industry was greater than concerns about "throwing good money after bad." The Bush Administration has announced plans for a $17.4 billion rescue package that will help General Motors and Chrysler avoid certain bankruptcy.
The "lame duck" Congress attempted to pass a $14 billion bailout for Detroit earlier this month, but the deal collapsed in a standoff between GOP lawmakers and the United Auto Workers Union.
As late as Wednesday, President Bush was still holding out the possibility of "an orderly bankruptcy" for the carmakers, as the best way to reform the industry. But in a statement Friday, Bush adopted the carmakers' argument that bankruptcy would "taint" the brand, and consumers would abandon American cars in droves.
"In the midst of a financial crises, allowing the U.S. auto industry to collapse is not a responsible course of action," Bush said.
Under the White House plan, General Motors and Chrysler would get a combined $13.4 billion in loans this month and next, with another $4 billion available in February if they need it. Ford has said it has enough cash to get through 2009.
Unlike the ill-fated Congressional proposal, the government would get no stock warrants in exchange for the money. The only real condition is that the car companies submit plans by March 31, showing that they are financially viable. If they are unable to do that, the White House said, the loans would be called and the companies would be forced into bankruptcy.
Of course, by then it will be an Obama Administration that is enforcing the provisions of the deal. It will be up to Obama to appoint someone in the government with authority to oversee the terms of the agreement.
The deal calls for the carmakers to renegotiate terms with its stakeholders — including dealers and suppliers — by March 31, as part of its steps to restore viability. What is uncertain is how that will affect workers. The United Autoworkers Union has balked at renegotiating labor contracts before they expire in 2010.
