WASHINGTON - Citing imminent danger to the national economy, President Bush agreed to an emergency bailout of General Motors and Chrysler, giving them a few months to get their businesses in order. But he left to President-elect Barack Obama the difficult political decision of ruling on their progress.
The plan pumps $13.4 billion by mid-January into the companies from the fund that Congress authorized to rescue the financial industry. But the two companies have until March 31 to produce a plan for long-term profitability, including concessions from unions, creditors, suppliers and dealers.
Another $4 billion will be available for GM if the rest of the $700 billion bailout package is released in February.
The bailout plan sets targets rather than concrete requirements about concessions, meaning that Obama and his advisers have enormous latitude to decide how to define long-term viability.
While Obama has broadly insisted that the automakers radically increase the fuel efficiency of their fleets and save the maximum number of jobs possible, he will have just nine weeks after taking office to press for a detailed transformation of an industry whose problems have been building for three decades.
In Chicago, Obama embraced the plan but said he had not had enough time to study the details. He did not address how he would turn a program designed as a short-term bridge loan into a long-term restructuring.
"I do want to emphasize to the Big Three automakers and their executives that the American people's patience is running out and that they should seize on this opportunity ... to come up with a plan that is sustainable," he said.
First the bills, then job cuts
He said that it was his intention to preserve jobs "for years to come" and that he wanted to make sure "that it's not just workers who are bearing the brunt of that restructure."
Ron Gettelfinger, the president of the United Automobile Workers union, said he was "pleased" that the administration acted on the loan requests, but said Bush added "unfair conditions" that singled out blue-collar workers. He said the union expects to appeal to Obama to alter the expectations for wage and benefit cuts. According to Treasury Department officials who drafted the wording, Obama would be free to loosen the standards, especially on how much workers will have to give up.
GM said it expects to draw on the first installment of its loans by Dec. 29. Soon after it pays suppliers and workers, the automaker will begin implementing downsizing plans, outlined to Congress earlier this month, that includes eliminating more than 30,000 jobs, shutting factories, shedding dealerships and determining the future of its Saab, Saturn and Pontiac brands.
In Detroit, a visibly relieved Rick Wagoner, GM's chairman, said the loans will allow the automakers to pay their bills and prevent a financial crisis from spreading through the industry's suppliers and dealers.
His reaction was echoed by Chrysler Chairman Robert Nardelli. "We intend to be accountable for this loan, including meeting the specific requirements set forth by the government," he said in an e-mail to employees.
Ford said it does not need short-term funding but warned that a failure by one or both competitors could endanger it as well.
Beyond the initial hurdles to provide all of the money, the new president will have to make the tough judgments needed about the future of the industry. Are enough jobs being cut and factories being closed? Have the right product lines been consolidated? Are all of the stakeholders sufficiently on the same page to make the long-term viability plans workable?
What's included and what's not?
On paper, Obama will inherit a club to wield against the automakers and the unions: He can threaten to "call" the loans and require repayment in 30 days. Yet as a practical matter, demanding immediate repayment would be enormously difficult to do, unless Obama chose to drive the two icons of American industrial strength into bankruptcy court in the first 70 days of his administration.
The new plan is missing one major element: a "car czar" to administer the program, a key feature of the bill defeated last week in the Senate. Until the end of Bush's presidency, Treasury Secretary Henry Paulson will play that role. But it is unclear what will happen after Obama is sworn in.
Bush's plan also strips away a requirement in Congress' plan 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 said it would give the first $2 billion to the government if it ever sold Chrysler Financial, the company's financing arm.
The companies would be required to limit executive pay, eliminate golden parachute severance packages and sell their private corporate jets. The loan deal also requires the companies to reduce their huge debt obligations by two-thirds, mostly through debt-for-equity swaps, and to reach agreements on wage and benefit cuts with the unions by Dec. 31.
The Los Angeles Times and Associated Press contributed to this report.