WASHINGTON - Citing imminent danger to the national economy, President Bush ordered an emergency bailout of the U.S. auto industry Friday, offering $17.4 billion in rescue loans and demanding tough concessions from the deeply troubled carmakers and their workers.
Detroit's Big Three cheered the action and vowed to rebuild their once-mighty industry, though they acknowledged the road would be anything but smooth as they fight their way back from the brink of bankruptcy.
The autoworkers union complained the deal was too harsh on its members, while Bush's fellow Republicans in Congress said it was bad business to bail out yet another big industry.
Bush, who signed the massive $700 billion rescue for financial institutions only this fall, said he was reluctant to approve yet another government bailout of private business. But he said that allowing the massive auto industry to collapse in the middle of what is already a severe downturn 'could send our suffering economy into a deeper and longer recession.'
Speaking at the White House, he also said he didn't want to 'leave the next president to confront the demise of a major American industry in his first days of office.'
President-elect Barack Obama, who takes office a month from Saturday, praised the administration action but warned, 'The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely necessary to save this critical industry and the millions of American jobs that depend on it.'
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.
Obama was noncommittal on possible changes but said there were bound to be 'painful steps' and he would 'make sure that when we see a final restructuring package, that it's not just workers who are bearing the brunt.'
Stock prices rallied on Wall Street after Bush's announcement but faded late in the day.
Some $13.4 billion of the money will be available this month and next - $9.4 billion of it for General Motors Corp. and $4 billion for Chrysler LLC, two auto giants that have said they could be facing bankruptcy soon without government help. GM is slated 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 United Auto Workers and the companies - under which laid-off workers can receive about 95 percent of their pay and benefits for years. Early this month, the UAW agreed to suspend the program.
Meanwhile, Treasury Secretary Henry Paulson said Congress should release the second $350 billion from the financial rescue fund that it approved in October to bail out huge financial institutions. Tapping the fund for the auto industry basically exhausts the first half of the $700 billion total.
If the carmakers fail to prove viability by March 31, they will be required to repay the loans, which they would find all but impossible. A firm will be deemed viable only if it can show positive cash flow and can fully repay the government loans.
Friday's rescue plan retains the idea of a 'car czar' to make sure the companies are keeping their promises and moving toward long-term viability.
The short-term overseer will be Paulson. But the White House deputy chief of staff, Joel Kaplan, said that if the Obama team wants someone else installed to bridge the administrations, Bush is open to that. Kaplan said there have been discussions with Obama's aides throughout the process.
The White House package is the lifeline desperately sought by U.S. automakers, who warned they were running out of money as the economy fell deeper into recession, car loans became scarce and consumers stopped shopping for their vehicles.
The carmakers have announced extended holiday shutdowns. Chrysler is closing all 30 of its North American manufacturing plants for four weeks because of slumping sales; Ford will shut 10 North American assembly plants for an extra week in January, and General Motors will temporarily close 20 factories - many for the entire month of January - to cut vehicle production.
General Motors CEO Rick Wagoner said in Detroit that GM had much work ahead but he was confident it could reinvent itself with the government help and even lead an economic recovery in America.
Chrysler CEO Bob Nardelli said the initial injection of capital would help the company get through its cash crisis and give it a push toward eventually returning to profitability. He said Chrysler was committed to meeting the conditions set by Bush in exchange for the money.
Still, House Republican leader John Boehner called the plan 'regrettable.' He said that granting loans for automakers was never the intention when Congress passed the $700 billion plan to rescue financial institutions and that the new plan 'has failed both autoworkers and taxpayers.'
Rep. Jeb Hensarling, R-Texas, chairman of the congressional oversight panel for the Wall Street rescue program, said a Chapter 11 bankruptcy reorganization, not loans rewarding decades of mismanagement, would have been a better decision.
'Unless union contracts are renegotiated, and unless demand picks up for domestic autos, $14 billion, $34 billion, $74 billion, even $104 billion will not solve the problem,' Hensarling said.
Under terms of the loan, GM and Chrysler must provide the government with stock warrants giving it the option to buy GM and Chrysler stock at a specific price. In addition, the automakers would be required to agree to limits on executive pay and eliminate some perks such as corporate jets.
Ford President and CEO Alan Mulally said his company would not seek the short-term financial assistance but predicted the aid would stabilize the industry.
'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.