Blunders and corporate jet rides aside, two of the Big Three of the auto industry finally got their bailout: President Bush announced this morning that the government would lend the carmakers $17.4 billion in return for certain concessions.
The money is meant only to give the companies some breathing room, during which they can extensively restructure and prove their viability, Bush said. They have three months to do so. If they can’t, he said, the government will call its loans regardless, leaving the companies to their fates.
The money, which will come from the Troubled Asset Relief Program, at first will include $9.4 billion to General Motors and $4 billion to Chrysler. Both have said that they will fail without immediate help. Chrysler’s struggles were underlined this week when it announced it would shut its 30 factories for a full month, rather than the two weeks that is traditional at this time of year. Ford has said it doesn’t need immediate assistance.
Allowing the Big Three to fail, Bush said, “is not a responsible course” in the midst of a recession.
The bailout calls for concessions from the companies similar to those in the auto bailout that failed in Congress a week ago, including reduced executive pay and the elimination of private corporate jets. That bill passed the House but was rejected by the Senate, leaving any possibility of a bailout to the White House.
Despite the agreement’s similarities to the congressional bill, there’s one big difference: The White House won’t appoint a “car czar” to oversee the industry, an idea that had caused controversy. Instead, Treasury Secretary Henry Paulson will oversee the program until President-elect Barack Obama takes over, at which point the new administration will decide whether to change the terms of the agreement.
The immediate effect of the announcement was a boost to the stock market. In the first half-hour of trading, the Dow rose 0.62 percent and the Nasdaq 1.18 percent.
But with other economic indicators pointing to a deepening recession, investors remain, unsurprisingly, wary.