Automakers grab loans, look to Obama White House

Simply letting the Big Three collapse was not an option amid a recession, housing slump and financial credit crunch, Bush said in announcing the short-term loans and demanding tough concessions from the automakers and their employees.

"By giving the auto companies a chance to restructure, we will shield the American people from a harsh economic blow at a vulnerable time," the president said in his Saturday radio address. "And we will give American workers an opportunity to show the world once again that they can meet challenges with ingenuity and determination, and emerge stronger than before."

The Detroit companies pledged to rebuild their once-mighty industry, though they acknowledged it would be tough to fight their way back from the brink of bankruptcy. If the carmakers fail to prove viability--a positive cash flow and ability to make good on the loans--by March 31, they will be required to repay the government loans.

That's something they would find all but impossible to do.

Bush said the loans will give automakers three months to institute plans to restructure into viable companies "which we believe they are capable of doing." He said if restructuring cannot be done outside bankruptcy, the loans will provide time for companies to make the legal and financial preparations needed for an "orderly" Chapter 11 bankruptcy.

"This restructuring will require meaningful concessions from all involved in the auto industry--management, labor unions, creditors, bondholders, dealers and suppliers," he said. "If a company fails to come up with a viable plan by March 31, it will be required to repay its federal loans. Taken together, these conditions send a clear message to everyone involved in American automakers: The time to make the hard decisions to become viable is now--or the only option will be bankruptcy."

The autoworkers union complained the deal was too harsh on its members, while Bush's fellow Republicans in Congress said it was simply bad business to bail out the industry using money from the $700 billion rescue program for financial institutions.

Obama, who takes office a month from Saturday, praised Bush's action but said the companies "must not squander this chance to reform bad management practices and begin the long-term restructuring" absolutely necessary.

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.