Automakers' Fate To Be In Hands Of Obama White House

WASHINGTON — The long-term fate of the auto industry rests with Barack Obama now that President George W. Bush has given car companies $17.4 billion in emergency rescue loans.

Simply letting the Big Three collapse was not an option amid a recession, housing slump and financial credit crunch, Bush said in announcing the short-term loans and demanding tough concessions from the automakers and their employees.

"By giving the auto companies a chance to restructure, we will shield the American people from a harsh economic blow at a vulnerable time," the president said in his Saturday radio address. "And we will give American workers an opportunity to show the world once again that they can meet challenges with ingenuity and determination, and emerge stronger than before."

The Detroit companies pledged to rebuild their once-mighty industry, though they acknowledged it would be tough to fight their way back from the brink of bankruptcy. If the carmakers fail to prove viability _ a positive cash flow and ability to make good on the loans _ by March 31, they will be required to repay the government loans.

That's something they would find all but impossible to do.

Bush said the loans will give automakers three months to institute plans to restructure into viable companies "which we believe they are capable of doing." He said if restructuring cannot be done outside bankruptcy, the loans will provide time for companies to make the legal and financial preparations needed for an "orderly" Chapter 11 bankruptcy.

"This restructuring will require meaningful concessions from all involved in the auto industry _ management, labor unions, creditors, bondholders, dealers and suppliers," he said. "If a company fails to come up with a viable plan by March 31, it will be required to repay its federal loans. Taken together, these conditions send a clear message to everyone involved in American automakers: The time to make the hard decisions to become viable is now _ or the only option will be bankruptcy."

The autoworkers union complained the deal was too harsh on its members, while Bush's fellow Republicans in Congress said it was simply bad business to bail out the industry using money from the $700 billion rescue program for financial institutions.

Obama, who takes office a month from Saturday, praised Bush's action but said the companies "must not squander this chance to reform bad management practices and begin the long-term restructuring" absolutely necessary.

Obama will be free to reopen the arrangement from the government's side if he chooses, and the head of the United Auto Workers said the union would be appealing to the new president and the strongly Democratic new Congress on that subject.

Some $13.4 billion of the rescue money will be available this month and next _ $9.4 billion for General Motors Corp. and $4 billion for Chrysler LLC, which have said they could be facing bankruptcy soon without government help. GM is set to receive the remaining $4 billion in loans after more money is released from the financial rescue account. Ford Motor Co. says it doesn't need federal cash now but would be badly damaged if one or both of the other two went under.

Under terms of the loans, 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. 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 can receive about 95 percent of their pay and benefits for years. This month, the UAW agreed to suspend the program.

The deal also calls for two-thirds of the automakers' debts to be converted to stock in the companies.

Comments

[Ramirez]

From Mark Steyn:
*****

"General Motors now has a market valuation about a third of Bed, Bath And Beyond, and no one says your Swash 700 Elongated Biscuit Toilet Seat Bidet is too big to fail. GM has a market capitalization of just over two billion dollars. For purposes of comparison, Toyota’s market cap is one hundred billion and change (the change being bigger than the whole of GM). General Motors, like the other two geezers of the Old Three, is a vast retirement home with a small loss-making auto subsidiary. The UAW is the AARP in an Edsel: It has three times as many retirees and widows as “workers” (I use the term loosely). GM has 96,000 employees but provides health benefits to a million people.

How do you make that math add up? Not by selling cars: Honda and Nissan make a pre-tax operating profit per vehicle of around 1600 bucks; Ford, Chrysler and GM make a loss of between $500 and $1,500. That’s to say, they lose money on every vehicle they sell. Like Henry Ford said, you can get it in any color as long as it’s red. ..."

http://article.nationalreview.com/?q=YTMxODc2NzY0OTNhODNhNmUwMjY5MzU2NzliMjA2NDY=

[IowaKid]

And they said the American Auto industry wouldn't compete with the foreign cars. Please read this.

http://www.latimes.com/business/la-fi-neil19-2008dec19,0,1742816.story

[Tweet]

I'm hearing that the "restructuring" means down-sizing - you know, making them lean and mean. This while we're losing jobs willy-nilly, the pressure to bail them out is specifically to avoid job loss, and Obama is considering a stimulus to create new jobs. Incredible.

It's time to take economists (and financial people) off this job. The problem is not comprehensible by economists, because it's a human (not a numbers) problem, and they're not trained to get it, and probably became economists specifically because they can't deal with human problems.

People focused on markets have nothing to contribute here. People who are focused on helping other people should be in charge. I hope that's Obama. I hope he's enough of a progressive to blow off the crap that economists are feeding all of us.

[Tweet]

How should Congress begin its investigation of the auto industry? By talking to experts. Car mag writers, Consumer Reports writers, dealers, engineers, repairmen, blue book writers. Investigate every model currently made; find out how they sold , how they held their value, what consumer complaints were, how they compared to foreign competition in performance, handling, reliability, etc.) Solicit public comment on the internet. Since so many people want to emphasize reducing the carbon footprint, find out from science just what can be done now and what can be expected in the future, and when.

Up to now the auto bailout discussion has been dominated by the perception that the big 3 make lousy cars. They have, and maybe they still do - but this is not a decision to be made on amorphous perceptions. Congress needs to know how good these cars are, how far along the companies are on new generations of vehicles, etc.

Because if it turns out that the problem is not in production but in marketing, the plan we'll need to hear is how the Big 3 are going to make hip cars - and then convince people that they ARE hip. The Big 3 used to know how to do this better than anyone. Until VW outhipped them and started them on their slide. This is what Congress is going to need to know - and I'm afraid Congress doesn't even know what it needs to know.

[PhilipTaylor]

At least Obama has goals of rebuilding our Industrial Base and Green Energy so we can begin balancing our trade imbalances, part of which is Americans can not buy many American products so they buy IMPORTS!

More INDUSTRIAL BASE = Less Importing + More EXPORTING = Improved TRADE BALANCES

More GREEN ENERGY = Less OIL IMPORTS + More GREEN Funds = Improved TRADE BALANCES

[saturn90]

Does anyone on here know that the Harbour report, which is the JD Power of auto assembly plants, ranked 9 or the top 10 most effecient auto plants in the world as Union plants and the 10th was the Nummi plant a Joint GM/Toyota UAW plant. There are no differences in plant work rules except where safety issues are concerned the UAW works with management to see that jobs are designed to minimize the chance a worker will get hurt on the job. We, the tax payers, subsidize the foreign plants, allow them to bring in autos and auto parts tariff free, while they charge us a 16% tariff in Japan to make it impossible for us to compete in their country, down from 34% tariff after a late 2000 concession on Japans

[Right-turn]

Last year was the first time that non-unionized workers at a foreign-owned assembly plant made more than members of the United Auto Workers union make on average in a year. The Detroit Free Press reveals in a very interesting article that Toyota paid out bonuses of $6,000 to $8,000 last year at its largest U.S. plant in Georgetown, KY. Combined with the base pay made by a non-union worker at the plant, that equates to $30/hour or $60,000/year based on a 2,000-hour work year. That is more than the $27/hour or $54,000 a UAW member made on average last year. Union workers, or course, hardly received any profit sharing bonuses last year due to the poor overall performance of the domestic automakers.

[DoesItReallyMatter]

Don't worry about the money in the "bag" rollingdivision, the bag has been empty for eight years. In reality, the Big Three LOAN, like all other debt in America, is being financed by the Japanese (you didn't really think the profits from Honda, Toyota and Nissan were staying here...did you?) Chinese (ditto), Saudis (guess where That money originated!), Koreans (Hyundai, KIA) etc. Nope, we've been essential bankrupt, and living on borrowed money for twelve years now, and few of you even knew that! Economic experts one and all, and the only consistent motto I read is, Trillions for Iraqi freedom, but not one nickle for a fellow American, and taxpayer. I hope you can eat your ideology, because soon it will be all that's left of this country!

[dandypuddin]

It's a Big 2 loan. Just clarifying.

[Deaninphilly]

Excellent point. Hence why I buy American up to and including food. If it wasn't grown here I don't eat it. Takes a simple second to read where something comes from. I don't buy foreign cars because the crapola that they are better is just that crap. All cars are made like crap anymore and if I have to buy I'll buy American. My last Ford had 300,000 miles on it I couldn't ask for anything more.

[watchTVgetSTUPID]

UAW takes a hit but GM CEO is not forced to work at same compensation as the Toyota CEO. Wagoner makes more money in one month than the Toyota CEO makes in a year

[watchTVgetSTUPID]

If you don't bail out the auto industry, then foreign imports will jump up. Good luck trying to borrow money from China after the trade imbalance makes them the only ones with cash. After they see America in Depression,they will not risk their money.

[rollingdivision]

Bush's illegal auto company bailout, said Robert Reich:" I'm among those who think there's good reason to give the Big Three a $14 billion bridge loan to stave off immediate bankruptcy until they come up with a restructuring plan. But I've got to tell you, I'm deeply troubled by what I hear is the administration's likely decision to give them a bridge loan, when just last week Congress said they can't have it.

Call me old-fashioned, but I believe in democracy. And under our Constitution, Congress is in charge of appropriating taxpayer money. If Congress explicitly decides not to appropriate it for a certain purpose, where does the White House get the right to do so anyway? By pulling the money out of another bag? That other bag, by the way, called the Troubled Assets Relief Program, or TARP for short, was enacted to rescue Wall Street, not the automobile industry."

[CalculatedRiskTaker]

My parents 2005 Lexus 330 is about the worst car I have ever driven. If you are crusing down the road and need a little power it's trouble. You push down on the pedal and nothing happens. So you push a little more and nothing happens. So you push a little more and all of a sudden it wakes up and down shifts and just about breaks your neck. The dealer admitts there a problem and can do nothing about.

In addition, in the day time it's impossible to read anything on the dashboard. You can't read the gauges or the radio.

It's must also have had the cheapist tires in the world put on it, 17,000 miles and they are worn out. Don't tell me my 80 year old parents are hard on tires and don't tell me imports are gods gift to cars

[politicogal2]

In this time of terrorism and fear, it is great to read about Eunice Williams. She was taken captive by the Mohawk Indians in 1704 and bridged the warring cultures. Great article about love and peace.

Read more: type "Vaboomer Eunice Williams" in Google search

[enochsmoky]

The UAW still is not agreeing to concessions. This will only prolong the agony until the UAW acknowledges reality. Union apologists will dispute this, but I know of $100,000 a year before benefits assembly line workers, $50,000 a year pensions, free retiree dental, health and vision benefits with no deductibles, $140,000 severance settlements and unworkable work rule horror stories. What is amazing is that the auto industry has lasted as long as it has.

[MattInVA]

I do want to support the union in this, but they are being pretty obnoxious. I think I read they're actually going to fight to keep the jobs bank... UGH!!

[dandypuddin]

You think you read?...

[sunshinerain]

"but I know of $100,000 a year before benefits assembly line workers" - if so, why haven't Fox News and others picked up on this????? Absurd fantasy.

[dandypuddin]

The UAW agreed to concession just this year, which go into effect next year. The average salary of a lineworker is $26,000 per year. Starting pay is now $14.00 per hour. Would you like them to make less than this? Why?

[4TJefferson]

Yeah! Let's get the average auto worker down to minimum wage then give the left over cash to the managers! That will fix everything.

[Emlyn]

Do you want them to work for two cents an hour? Maybe we all should work for peanuts, make the rich richer, you know. Is that what you want?

[dandypuddin]

Does Wal Mart accept peanuts?

[treebu]

What happens when a bank robber gets arrested with the money in hand? He goes to jail and the money is returned to the bank. Why does this not apply to the bankrobbers such as Bernanke and friends. Can't we freeze their assets until we find out who made off with what?