WASHINGTON (Reuters) - President George W. Bush announced $17.4 billion in emergency loans to faltering U.S. carmakers on Friday in a dramatic step that would pull the industry from imminent collapse 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 to force the car industry to work out 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 ailing U.S. automakers and expects General Motors and Chrysler LLC to access the money immediately, a senior administration official said.
“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 in opening trading on Friday on the news of the government lifeline to the sector.
Some $13.4 billion of the total 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.
The White House moved on its own after Democrats and Republicans in the U.S. Congress were unable to reach agreement after weeks of negotiations that included desperate pleas on Capitol Hill from the auto chiefs.
Bush attached some conditions. The loans would be called back if the automakers cannot prove they are viable by March 31, an administration official said.
The three-year loans would require limits on executive compensation. Auto companies must demonstrate how they would become viable. They must pay back all their loans to the government, and show that their firms can earn a profit and achieve a positive net worth. The automakers would also have to provide warrants for non-voting stocks.
“This restructuring will require meaningful concessions from all involved in the auto industry -- management, labor unions, creditors, bondholders, dealers, and suppliers,” Bush said.
Michigan Democratic Rep. John Dingell, whose state is the heartland of the U.S. auto industry, expressed concern about the prospect of concessions.
“We all want to see the Big 3 restructure and be competitive in the future, but it is irresponsible during a time of economic crisis for the White House to insist that workers take further wage cuts on top of the historic concessions they have already made,” he said.
Bush announced the loan program just weeks before leaving office with low popularity ratings, an economy in recession and the country fighting two wars.
The collapse of the auto industry and its knock-on effect on the economy would have been another blow to his troubled legacy before he hands over to Democratic President-elect Barack Obama on January 20.
Both GM and Chrysler have said a bankruptcy filing is not an option they would chose because of the risk that it would drive more consumers away from their brands. Both companies have been forced to idle plants and lay off thousands of workers across North America.
Chrysler announced fresh cost-cutting measures amid news of the government loan program.
The Detroit-based automakers have warned that a bankruptcy filing by one could topple suppliers and endanger the remaining two companies because of the overlap in their key parts suppliers.
Ford Motor Co is not seeking emergency loans but has asked the government to consider standby credits it could draw on if its own position worsens more than expected in 2009 or if Chrysler or GM were to fail.
“This is wonderful. GM dealers, and Chrysler dealers, have been waiting for days and days to get receivables from the companies, such as delayed incentive payments. We’re happy to get the money,” said Raymond Ciccolo, a GM dealer in Boston, of the loan news.
“The question now is how to excite consumers to buy cars from January to March. We’re all sitting on millions of dollars of unmoving cars.”
The Treasury said the move to help the automakers had effectively exhausted the initial $350 billion of the Wall Street bailout funds approved by Congress and that it now needs to access the second half of the total $700 billion.
The remaining $4 billion in aid to the automakers is contingent on the administration seeking access to the second half of the financial rescue plan, known as the Troubled Asset Relief Program, the administration official said.
No automakers have been spared in the brutal global sales slump.
Following on the heels of the U.S. government plan, Canadian Prime Minister Stephen Harper was set to announce an aid package for his country’s auto industry on Saturday. That aid could amount to several billion dollars.
Harper said he viewed Washington’s package as “a very positive development,” his spokesman said on Friday.
Japan’s Toyota Motor Corp could report its first annual parent-only operating loss in 71 years in the year to end-March, and may issue a profit warning at a scheduled year-end news conference on Monday, Japanese media reported.
Toyota, which declined to comment on the reports, last posted an operating loss in its first year of operation in 1937/38.
Automakers everywhere are under huge pressure to cut costs as a global recession and tight credit strangle demand, and Japanese carmakers are feeling the extra pinch from a strong yen.
In perhaps the strongest protest since the dollar soared to a 13-year high recently, Honda Motor Co CEO Takeo Fukui warned a strong yen would cripple Japanese industry and trigger mass layoffs, forcing the automaker to shift production offshore if it persisted.
Chrysler is widely considered the weakest of the big three U.S. automakers.
Cerberus Capital Management, the private equity firm that bought 80 percent of Chrysler from Daimler AG, has retained advisors to study a range of options for the No. 3 U.S. automaker, including selling off its most valuable assets, including its Jeep brand and its minivan line.
Additional reporting by U.S. autos team and Tokyo bureau, writing by Steve Holland; editing by Frances Kerry