US officials Friday announced a 13.4 billion dollar rescue loan for two of the Big Three automakers, requiring tough reforms, in a move aimed at staving off an economic calamity.
General Motors and , facing a threat of imminent bankruptcy, agreed to the loan terms and will get the funds starting on December 29. GM would get 9.4 billion dollars in two tranches through mid-January and Chrysler up to four billion on December 29, officials said.
Ford said it would not be part of the loan program, which could include four billion dollars more for GM pending congressional action.
"These are not ordinary circumstances," President George W. Bush said in announcing the aid.
"In the midst of a crisis and a recession allowing the US auto industry to collapse is not a responsible course of action."
The funds will be drawn from the Treasury's 700 billion dollar Troubled Asset Relief Program (TARP). The companies will provide warrants for non-voting stock, accept limits on executive pay and perks and give the government loans priority to other debts, to the extent permitted by law.
The automakers will have to take steps to demonstrate their viability by March 31 or the government could require the funds to be repaid.
"The automakers and unions must understand what is at stake and make hard decisions necessary to reform," Bush said. "We intend to send a clear message to everyone involved in the future of American automakers."
He added that restructuring the industry would "require meaningful concessions from all involved in the auto industry."
Among the "targets" established by the loan would be a two-thirds reduction in debt by exchanging debt for equity, more flexible work rules and cuts in wages to make the companies competitive with foreign manufacturers established on US soil.
"The loan will be automatically called by the government and will be repaid in full if certain conditions are not met" by March 31, a senior administration official said.
"The most important one is that the firms must be viable."
Chrysler LLC chairman and chief executive Bob Nardelli his firm "is committed to meeting these (loan) requirements."
General Motors lauded the action and said in a statement: "This action helps to preserve many jobs, and supports the continued operation of and the many suppliers, dealers and small businesses across the country that depend on us."
CEO Alan Mulally said his company would not draw on the loans but nonetheless welcomed the action.
"We do not face a near-term liquidity issue," Mulally said.
"But all of us at Ford appreciate the prudent step the administration has taken ... a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened US economy."
The administration official said the loan would be managed by the US Treasury and that no "car czar" would be appointed, but that president-elect Barack Obama would be allowed to designate one after taking office January 20.
"We have kept them (the Obama transition team) informed throughout the process," the official said.
Obama called the move "a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers."
He added that the companies "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.
But the United Auto Workers union said it would try to reverse "unfair conditions" imposed on workers in the bailout.
"We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed as we join in the coming months with all stakeholders to create a viable future for the US auto industry," UAW President Ron Gettelfinger said.
Mired in heavy losses and debt, the Big Three automakers had asked earlier for a government rescue to weather the economic crisis after Congress refused a bailout.
Chrysler said Thursday it was closing its American units for a month from Friday after GM announced it was idling 30 percent of its North American production "in response to rapidly deteriorating market conditions."
Official said the rescue did not cover the financial arms of the auto firms, which also are facing distress from the credit crunch and weak economy.
Source: AFP Global Edition
