Bush throws lifeline to auto industry

By Jeremy Pelofsky and John Crawley

WASHINGTON (Reuters) - President George W. Bush announced $17.4 billion in emergency loans to faltering U.S. carmakers on Friday in a dramatic step to stave off collapse of the industry and save hundreds of thousands of jobs from falling victim to a deep recession.

Bush, seeking to bolster his legacy and bucking some fellow Republicans who would prefer the car industry to deal with its problems without government aid, said it would be irresponsible in a time of economic crisis to let carmakers die.

The government will offer up to $17.4 billion in loans to the U.S. automakers, reeling from a slump in consumer demand, and expects General Motors and Chrysler LLC to access the money immediately. The White House said the loan agreements had been signed.

Ford Motor Co, the other firm in Detroit's storied Big Three, said its liquidity is adequate for now and it did not need a loan at this point.

"If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers," Bush said, warning that to do nothing would deepen and prolong the U.S. recession.

U.S. stocks rose on the news of the lifeline to the sector, with GM shares jumping 10.9 percent.

Some $13.4 billion of the total package will be made available in December and January from a $700 billion Wall Street bailout fund that was originally designed to rescue struggling financial institutions.

Bush attached a string of conditions to the three-year loans and set a deadline of March 31 for the companies to prove they can restructure enough to ensure their survival or have the loans called back.

Democratic President-elect Barack Obama, who takes over from Bush on January 20 and so will inherit the handling of the deal, welcomed the loan move as a necessary step. But he said he wanted to make sure workers do not bear the brunt of the restructuring.

"My top priority in this administration is to create 2.5 million new jobs and I want some of those jobs to be in the auto industry," Obama said at a news conference.

Obama has been calling for short-term loans to the sector based on steps toward long-term viability.

LABOR TERMS

Other Democrats and the main auto labor union assailed the deal as unfair, saying workers were going to have to concede too much.

One provision in the loan terms on worker pay brought protests from the United Auto Workers union, and then a change in wording by the U.S. Treasury. The Treasury altered the wording of the terms for automakers to seek reductions in wages and benefits to levels "competitive with" Japanese rivals.

Under wording released earlier in the day, the Treasury said it would require reductions to levels "equal to" average compensation paid per hour and employee by Toyota Motor Corp, Nissan Motor Co and Honda Motor Corp in the United States.