The White House announced a $17.4 billion rescue package for the troubled Detroit auto makers that allows them to avoid bankruptcy and leaves many of the big decisions for the incoming Obama administration.
Speaking from the White House, President George W. Bush said the administration decided against forcing a bankruptcy to compel cost-cutting, in order to avoid the risk that consumers would desert one or more of the companies and touch off an industry collapse, deepening the current economic downturn.
"In the midst of a financial crisis...allowing the U.S. auto industry to collapse is not a responsible course of action," Mr. Bush said.
"Under ordinary economic circumstances, I would say 'this is the price that failed companies must pay' and I would not favor intervening to prevent the auto makers from going out of business," the president said. "But these are not ordinary circumstances."
The deal would extend $13.4 billion in loans to General Motors Corp. and Chrysler LLC in December and January, with another $4 billion likely available in February. It also would provide the government with non-voting warrants, although the exact amount was unclear immediately. Ford Motor Co. has said it doesn't need short-term assistance.
The deal is contingent on the companies' showing that they are financially viable by March 31. If they aren't, the loans will be called and all funds must be returned, officials said.
The deal generally tracks key provisions of the bailout legislation that nearly passed Congress earlier this month. But it is relatively lenient in allowing the companies to show their viability. It defines viability as having a positive net present value -- a way of gauging the companies' worth, taking into account all their future obligations.
Notably, it provides significant flexibility to the companies in showing their viability. It sets out targets for the companies to hit in determining their financial health, such as reducing debt and current cash payments for future health care obligations.
But according to a White House fact sheet, the targets "would be non-binding in the sense that negotiations can deviate from the quantitative targets...providing that the [company] reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations."
One potential move that could help the companies achieve some savings: the companies will be required to reach new agreements with major stakeholders, including dealers and suppliers, by March 31.
Determining viability apparently will be up to the Obama administration. The agreement designates a person to oversee the government's effort, although officials stopped short of referring to that as a "car czar." For the outgoing Bush administration, that person will be Treasury Secretary Henry Paulson. President-elect Barack Obama will choose his own point person later.
Previously, the Bush administration planned to coordinate with the Obama camp on selection of a car czar who would continue to serve.
Overall, the deal appeared to represent a modest step in the administration's efforts to put the auto makers on a long-term path to viability. By forsaking a trip to bankruptcy court, the White House gave up its most powerful weapon to extract concessions from the companies and their workers, suppliers, dealers and creditors.
But it likely will achieve what officials recognized as a more important -- and perhaps conflicting -- goal: preventing a collapse of one of the country's most important industries, at a time of broad economic weakness. The administration was particularly worried about what it termed a "disorderly" collapse of the industry.
"We lost 533,000 jobs last month," Mr. Bush said in an appearance Thursday. "What would another million jobs lost do to the economy? What would that do to the psychology in markets? What would that do -- how would that affect the working people? And so as you can tell, we're all in, in this administration. And if need be, we'll be in for more."
On Friday, all three U.S. auto makers issued statements in support of the government's action.
"We appreciate the president extending a financial bridge at this most critical time for the U.S. auto industry and our nation's economy," GM said. "This action helps to preserve many jobs, and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us."
Chrysler said it appreciated the "administration's confidence" in the company and vowed to get right work on achieving cost concessions. "We intend to be accountable for this loan, including meeting the specific requirements set forth by the government," Chrysler chief Robert Nardelli said a prepared comments.
The statement also noted that Chrysler parent Cerberus Capital Management LP had already agreed to "forgo any benefit from the upside that would, in part, be created from the bridge loan and any other government assistance that the company may obtain." The involvement of a private-equity firm in the rescue program has been a ticklish political issue.
Separately, Chrysler said it is revamping its sales and marketing operations and that Deborah Meyer is stepping down as chief marketing officer after less than 18 months on the job. Among other things, the company's China efforts will centralized at headadquarters in Michigan. Also, Philip F. Murtaugh, who was hired a year ago as Asia chief, will be leaving the company.—Henry J. Pulizzi and Shirleen Dorman contributed to this article.
Write to John D. McKinnon at firstname.lastname@example.org