Despite Loans, Uphill Road For GM, Chrysler

GM and Chrysler have got their government bailout, but it came with some conditions that will be difficult for the companies to meet. In some cases, the decisions must be made by outside parties, such as the United Auto Workers or investors who hold bonds issued by the companies.

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MELISSA BLOCK, host:

From NPR News, this is All Things Considered. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris. President Bush says General Motors and Chrysler will get their bailout to the tune of more than $17 billion. But when the Bush administration writes the check, the clock will start ticking. The automakers will have a little more than three months to pull off a sweeping restructuring. It's a turnaround they've been working on for years but haven't managed to implement. Then again, to paraphrase Samuel Johnson, the prospect of hanging tends to concentrate the mind. NPR's Frank Langfitt reports on what GM and Chrysler will need to turn themselves around.

FARNK LANGFITT: President Bush said lending money was the best choice given the alternative. In better times, he said he would have preferred bankruptcy. But the president said he feared the collapse of either company would wreak havoc on a fragile economy.

President GEORGE W. BUSH: My economic advisors believe that such a collapse would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry. It would worsen a weak job market and exacerbate the financial crisis. It could send our suffering economy into a deeper and longer recession.

LANGFITT: In exchange for the money, the White House is making some big demands. For instance, bond holders will have to take some equity stakes in the companies in place of some debt repayment. The United Auto Workers will have to sacrifice as well. The union will have to accept work rules and wages, quote, "competitive with companies like Toyota and Honda by the end of next year."

President BUSH: The automakers and unions must understand what is at stake and make hard decisions necessary to reform.

LANGFITT: The companies have until the end of March to prove they're viable. Otherwise, the government will call in the loans and the companies will proceed to bankruptcy court. Although the terms are tough, they're not ironclad. If the companies cannot meet the targets, they must explain why.

Ms. KIM KORTH (Auto Analyst): There is a little bit of wriggle room.

LANGFITT: Kim Korth is a long time auto analyst in Grand Rapids, Michigan.

Ms. KORTH: You don't have to be exactly meeting every single one of these conditions but you darn well better have a compelling case as to why you can't meet one of them. So there's a little bit of that language built in, but it is going to be a huge amount of work in the next couple of months.

LANGFITT: For instance, lenders to GM will have to take a percentage of debt repayment in company stock. That would be tough to swallow. GM has been trading today at around four bucks a share. But Korth says the lenders don't have a lot of choice.

Ms. KORTH: I think they'll try to cut as a good a deal as they can. But I don't see a whole lot of alternatives for them to say no.

LANGFITT: Otherwise, it's just into bankruptcy.

Ms. KORTH: Right.

LANGFITT: Where lenders could get less. As for the United Auto Workers, they're already rebelling against the terms of today's deal. Union President Ron Gettelfinger called them quote, "unfair." And he said he'd work with the Obama administration to remove them. At a news conference today, Mr. Obama said workers shouldn't make all the sacrifice, but he also said there has to be a tough restructuring.

President-elect BARACK OBAMA (Democratic Senator, Illinois): I do want to emphasize to the Big Three automakers and their executives that the American people's patience is running out.

LANGFITT: Michael Ruminant(ph) follows the auto industry from Michigan. He says the United Auto Workers need to be careful. They can't risk pushing the companies into bankruptcy where a judge could strip away their health benefits. Instead, Ruminant says Gettelfinger has to focus on long term survival of the companies and his union.

Mr. MICHAEL RUMINANT (Auto Analyst): Ron Gettelfinger's job in the future will be a very difficult one and one fraught with several choices, some that he doesn't really want to make.

LANGFITT: Like cutting union wages and benefits again. The company's network of car dealers will also have to shrink under the plan. But today, dealers were just happy knowing the companies would still be in business. Barry Williams runs a Chevy dealership in Elton, Maryland. He said Congress' failure to pass a bailout earlier had scared off buyers. And today's news from the White House was a boost.

Mr. BARRY WILLIAMS (Proprietor, Williams Chevrolet, Elkton, Maryland): I think that it's going to give the public confidence to come into the door and to buy again. Their indecision to do nothing just fueled the public fears out there.

LANGFITT: And with that, Williams hit on one of the most important questions surrounding the automaker's survival: Will Americans start buying cars again soon? Even the White House can't control that. Frank Langfitt, NPR News, Washington.

NORRIS: At our website, you can find expert opinions on that question and other possible effects of this new bailout. You'll find that at npr.org.

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Bush Sets $17.4 Billion In Loans For Automakers

President Bush announces the administration's plan to help U.S. automakers at the White House. i i

hide captionPresident Bush announces the administration's plan to help U.S. automakers at the White House on Friday.

Saul Loeb/AFP/Getty Images
President Bush announces the administration's plan to help U.S. automakers at the White House.

President Bush announces the administration's plan to help U.S. automakers at the White House on Friday.

Saul Loeb/AFP/Getty Images

In Focus

President Bush on Friday unveiled a long-awaited plan aimed at helping the struggling U.S. auto industry avoid bankruptcy and massive layoffs that could deepen the nation's recession, offering carmakers $17.4 billion in short-term financing.

Speaking at the White House, Bush said General Motors Corp. and Chrysler LLC, both of which have said they are in danger of running out of cash soon, would have immediate access to the money.

"The American people want the auto companies to succeed, and so do I," the president said.

"If we were to allow the free market to take its course now, it would surely lead to bankruptcy and liquidation of the industry," he said.

"Allowing the auto companies to collapse is not a responsible course of action."

Some $13.4 billion — $9.4 billion for GM and $4 billion for Chrysler — would be available through January and would be drawn from the $700 billion fund that was originally earmarked to rescue the financial industry.

But the loans would come with strict conditions. The money could be called back if the automakers cannot prove they are viable by March 31. Executive compensation and other perks would be limited.

"The time to make the 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."

President-elect Obama called the White House plan a "necessary step" to restoring the health of the sector.

The automakers and the United Auto Workers union reiterated Thursday that bankruptcy was not an option. For the UAW, bankruptcy could mean voided labor contracts and renegotiation of benefits.

The White House had been reviewing several options to assist GM and Chrysler, who have sought immediate cash infusions to stay afloat. Ford Motor Co. has said its bottom line is in better shape, but it wants access to government loans if needed in the future.

The automakers said they would do their best to abide by the requirements laid out in the plan.

General Motors said in a statement that the action "helps to preserve many jobs, and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us."

"We know we have much work in front of us to accomplish our plan," the company said. "It is our intention to continue to be transparent as we execute our plan, and we will provide regular updates on our progress."

Chrysler Chief Executive Officer Bob Nardelli said his company had signed a "letter of intent" that "outlines the specific requirements that must be achieved."

He said the initial cash injection would assist in helping return Chrysler to profitability.

Ford President and CEO Alan Mulally predicted that the loans would help stabilize the industry even though his company did not immediately need the funds.

"The U.S. auto industry is highly interdependent, and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened U.S. economy," Mulally said.

Meanwhile, Treasury Secretary Henry Paulson said Friday that the administration had already allocated the first half of the $700 billion financial industry bailout, and he urged Congress to release the remaining $350 billion.

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