$17.4 billion auto bailout has strings attached

WASHINGTON - Ailing U.S. automakers and their workers accepted huge concessions Friday, potentially including a partial nationalization, in return for a $17.4 billion federal rescue package meant to buy them time to survive.

President George W. Bush outlined a plan that would hand $13.4 billion this month and next to General Motors Corp. and Chrysler LLC. Both companies have said they soon might be unable to pay their bills without federal help.

GM would get $9.4 billion and Chrysler $4 billion. Ford Motor Co. has said it does not need immediate help.

An additional $4 billion could be available in February, but that is contingent on whether Congress approves a request made by Treasury Secretary Henry Paulson Friday for the $350 billion second half of the financial bailout fund. Tapping the fund for the auto industry basically exhausts the first half of the $700 billion total, he said.

President-elect Barack Obama, who takes office on Jan. 20, warned the auto industry that Americans did not have infinite patience.

The auto rescue package demands concessions similar to those outlined in a bailout plan that was approved by the House but rejected by the Senate a week ago. It would give the automakers three months to come up with restructuring plans to become viable companies.

If they fail to produce a plan by March 31, the automakers 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," Bush said. "The automakers and unions must understand what is at stake and make hard decisions necessary to reform."

GM CEO Rick Wagoner said the automaker has significant work ahead, but he said he is confident GM will work with stakeholders to make the company viable.

Wagoner said at a news conference that the federal loans are a blueprint for the century-old automaker's next 100 years.

Video   Obama: Expecting tough economic road Dec. 19: President-elect Barack Obama discusses the immediate future of the U.S. economy and has some pointed words for the 'Big 3' automakers. MSNBC

Wagoner has come under sharp criticism for his management of the nation's largest automaker in this crisis. When asked at the news conference if he would step down, he replied: "Absolutely not."

The president of the United Auto Workers union, Ron Gettelfinger, said, "This will keep the doors of America's factories open, keep Americans working and prevent the devastating economic consequences for millions of Americans and thousands of businesses that would have resulted from a liquidation of operations by one or more auto companies."

Gettelfinger said in a statement that the union is reviewing the plan and will make "shared sacrifices" with management. But he noted that UAW members have already made substantial sacrifices to help make the domestic auto companies more competitive.

"While we appreciate that President Bush has taken the emergency action needed to help America's auto companies weather the current financial crisis, we are disappointed that he has added unfair conditions singling out workers," said Gettelfinger. "These conditions were not included in the bipartisan legislation endorsed by the White House, which passed the House of Representatives and which won support from a majority of senators."

In announcing the plan, Bush said the companies' workers should agree to wage and work rules that are competitive with foreign automakers by the end of next year.

And he called for elimination of a "jobs bank" program — negotiated by the UAW and the companies — under which laid-off workers receive unemployment benefits and supplemental pay from their companies for 48 weeks. If they remain laid off beyond that, they move to a jobs bank in which the company provides about 95 percent of their pay and benefits. Until the most recent contract, people could remain in the jobs bank for years. Early this month, the UAW agreed to suspend the program.

Under the White House plan, the government will have the option of becoming a stockholder in the companies, much as it has with major banks, in effect partially nationalizing the industry. GM and Chrysler must provide the government with stock warrants giving it the option to buy  stock in the two companies at a specific price.

In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.

The plan retains the idea of a "car czar" to make sure the auto companies are keeping their promises and moving toward long-term viability.

The short-term overseer will be Paulson. But the White House deputy chief of staff, Joel Kaplan, said that if the Obama team wants someone else installed to bridge the administrations, Bush is open to that.

Allowing the U.S. auto industry to collapse in the middle of what is already a severe recession is not a responsible course of action, Bush said.

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