In brushing aside the concerns of congressional Republicans and reluctantly tossing a $17.4 billion government lifeline to General Motors and Chrysler yesterday, President George W. Bush ensured that the automakers would not fail in coming weeks - sparing both the economy and his own legacy another potentially devastating blow.
But the ultimate effect of Bush's action was to leave most of the tough decisions about the future of the U.S. auto industry to President-elect Barack Obama. The conditions Bush attached to the desperately needed money, such as requiring unions to accept wages and benefits comparable to those at U.S. factories run by foreign automakers, were largely nonbinding and thus subject to change by the next president.
That could mean a far different - and possibly less bleak - future for American automakers than many analysts had been predicting.
Obama has consistently echoed Bush's call for major restructuring by U.S. automakers to ensure their long-term viability in a global marketplace.
With his strong environmental and pro-labor stances, however, Obama might have a much different view of what constitutes viability than his predecessor. For example, in his energy plan, Obama has committed not just to keeping Detroit alive but making it a world leader in fuel-efficient, environmentally friendly vehicles.
"This is clearly a temporary measure," Mark Oline, an analyst with the credit rating firm Fitch Ratings, said of the bailout. "We expect the agreement will be significantly reworked once the new Congress and the new administration take office."
Detroit automakers had already begun planning ways to become more competitive, shifting production from gas-guzzling trucks to smaller, fuel-efficient cars and investing in technology to produce hybrid and electric cars. But those changes have been slow in coming, and the recession and credit crunch hammered Detroit's already financially weakened Big Three.
GM and Chrysler have said they need a total of $14 billion by March 31 or could face bankruptcy. Ford has said it does not need short-term funding but has warned that a failure by one or both competitors could endanger it as well.
Reflecting the future flexibility in Bush's plan, the United Auto Workers union and some Democratic lawmakers began calling on Obama to change some of the conditions.
Obama called the bailout a "necessary step" and warned GM and Chrysler executives not to squander the chance to remake their companies because "the American people's patience is running out."
But Obama also said workers shouldn't be the only auto industry stakeholders asked to take "painful steps," speaking during a news conference in which he stressed the importance of increasing wages throughout the economy.
"I just want to make sure that when we see a final restructuring package, that it's not just workers who are bearing the brunt of that restructuring," Obama said.
Bush's announcement yesterday morning ended a monthlong drama that saw the chief executives of Detroit's Big Three trek to Washington twice to plead for emergency loans for their teetering companies and the approximately 3 million people whose jobs directly or indirectly rely on them.
"There is too great a risk that bankruptcy now would lead to a disorderly collapse of the auto companies," Bush said. "My economic advisers believe that would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry ... and send our suffering economy into a deeper and longer recession."
GM Chief Executive Richard Wagoner and other GM executives provided few new details of how they would restructure the automaker beyond the plan they submitted to Congress this month. That plan included eliminating or selling GM's Saab and Saturn brands, shrinking the Pontiac division to handful of niche models, laying off thousands of workers and cutting its sales network by about 2,000 dealers.
"We know we have a lot of work in front of us to accomplish this plan," Wagoner said at a Detroit news conference. "We look forward to proving what American ingenuity can achieve."
GM stock shot up 23 percent yesterday to $4.49. Chrysler is privately held. Its chief executive, Robert Nardelli, said the company was committed to meeting the bailout requirements.
The plan announced by the White House is similar to one crafted with congressional Democratic leaders this month, although that plan took the loan money from an existing $25 billion fund to help automakers retool their factories to produce more fuel-efficient vehicles.
But the legislation was blocked largely by strong opposition from Republican lawmakers, who argued that bankruptcy was the only way to force the U.S. auto companies to make major changes.
With little other alternative, Bush relented on the source of the funding, agreeing to Democratic demands to use money from the $700 billion financial rescue fund. Several Republicans sharply criticized Bush for that yesterday.
Under the White House plan, the Treasury Department will provide $13.4 billion in short-term loans to the automakers from the first half of the $700 billion fund. An additional $4 billion would be available Feb. 17 if Congress does not block release of the second half of the fund.
GM and Chrysler must have attained long-term financial viability by March 31, the White House said, or the companies would have to repay the loans immediately.
Other conditions include a ban on stock dividends, executive compensation caps, federal fuel-efficiency complicance, and providing the government warrants to purchase nonvoting stock equal to 20 percent of the loan amount.
In addition to those conditions, the White House set out several restructuring targets for the companies. Among those are reducing their debt by two-thirds by swapping it for equity; eliminating a jobs bank that continues to pay laid-off workers; making wages and benefits competitive with U.S. workers for Toyota, Honda and other foreign automakers, and requiring the UAW to take at least half of future payments into a retiree benefit trust in the form of company stock.
Persuading creditors to exchange their bonds for stock in General Motors won't be easy, analysts said. Some issues of GM bonds are currently trading for less than 20 cents on the dollar, but the company's woeful stock isn't a very attractive alternative.
Aside from the executive compensation and stock warrant conditions, which are required for money disbursed from the $700 billion rescue fund, Obama could revise the other conditions and restructuring targets, Bush administration officials acknowledged.
Jim Puzzanghera and Maura Reynolds reported from Washington. Martin Zimmerman reported from Los Angeles.
* Automakers will get $13.4 billion in short-term financing
* The United Auto Workers union will be asked to rework contracts * Auto companies must use the money to become financially viable
* If a company has not become financially viable by March 31, all funds are to be returned to Treasury
* Auto companies must accept limits on executive compensation and perks