Bush announces car rescue deal

The Bush administration came to the rescue of the troubled US car industry today offering $17.4bn (€12.4bn) of loans in exchange for concessions from companies and workers.

“Allowing the auto companies to collapse is not a responsible course of action,” US President George Bush said.

He said that a bankruptcy was unlikely to work for the industry at this time and would deal “an unacceptably painful blow to hardworking Americans” across the economy.

One official said $13.4bn (€9.6bn) would be available this month and next, $9.4bn (€6.75bn) for General Motors and $4bn (€2.87bn) for Chrysler.

Both companies have said they soon might be unable to pay their bills without federal help. Ford has said it does not need immediate help.

Mr Bush said the rescue package demanded concessions similar to those outlined in a bailout plan that was approved by the House of Representatives but rejected by the Senate a week ago. It would give the firms three months to come up with restructuring plans to become viable companies.

If they fail to produce a plan by March 31, they will be required to repay the loans, which they would find very difficult.

“The time to make hard decisions to become viable is now, or the only option will be bankruptcy,” Mr Bush said. “The automakers and unions must understand what is at stake and make hard decisions necessary to reform.”

Mr Bush’s plan is designed to keep the auto industry running in the short term, passing the longer-range problem on to the incoming administration of President-elect Barack Obama.

The White House package is the lifeline desperately sought by US carmakers, who warned they were running out of money as the economy fell deeper into recession, car loans became scarce and consumers stopped shopping for cars.

They have announced extended holiday shutdowns. Chrysler is closing all 30 of its North American manufacturing plants for four weeks because of slumping sales; Ford will shut 10 North American assembly plants for an extra week in January, and General Motors will temporarily close 20 factories – many for the entire month of January – to cut vehicle production.

Mr Bush said the companies have faced serious challenges for many years: burdensome costs, a shrinking share of the market and plunging profits. “In recent months, the global financial crisis has made these challenges even more severe,” he said.

The president said that on the one hand, the government has a responsibility not to undermine the private enterprise system, yet on the other hand, it must safeguard the broader health and stability of the US economy.

“If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers,” he said.