/ 20 December 2008

Car makers eye reforms as US offers aid

United States car makers mulled painful reforms on Saturday after President George Bush unveiled a $13,4-billion rescue loan for the industry.

United States car makers mulled painful reforms on Saturday after President George Bush unveiled a $13,4-billion rescue loan for the struggling industry, but demanded tough reforms in return in a move aimed at staving off a new economic calamity.

“In the midst of a crisis and a recession, allowing the US auto industry to collapse is not a responsible course of action,” Bush said as he released the package on Friday, after weeks of deliberations.

General Motors (GM) and Chrysler, facing a threat of imminent bankruptcy that could create economic chaos and throw millions out of work across the country, agreed to the terms and will get the loans, starting on December 29.

GM will get $9,4-billion in two instalments through mid-January and Chrysler up to $4-billion this month, officials said.

Ford said it would not be part of the loan programme, which could include an additional $4-billion from February for GM pending congressional action.

The funds will come from the Treasury’s $700-billion Troubled Asset Relief Programme (Tarp) approved in October to bail out struggling financial institutions.

The companies have to provide warrants for non-voting stock, accept limits on executive pay and perks and give priority to the government loans over other debts, to the extent permitted by law.

The car makers will have to take steps to demonstrate their viability by March 31 or the government could require the funds to be repaid.

“The [car makers] and unions must understand what is at stake and make hard decisions necessary to reform,” Bush said.

He added that restructuring the industry would “require meaningful concessions from all involved in the auto industry”.

Among the “targets” established by the loan would be a two-thirds reduction in debt by exchanging debt for equity, more flexible work rules and cuts in wages to make the companies competitive with foreign car makers established on US soil.

“The loan will be automatically called by the government and will be repaid in full if certain conditions are not met” by March 31, a senior administration official said. “The most important one is that the firms must be viable.”

Chrysler LLC chairperson and chief executive Bob Nardelli said his firm “is committed to meeting these [loan] requirements”.

GM lauded the action and said in a statement: “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.”

But the United Auto Workers (UAW) union said it would try to reverse “unfair conditions” imposed on workers in the bailout, saying they had already made sharp concessions.

“We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed as we join in the coming months with all stakeholders to create a viable future for the US auto industry,” UAW president Ron Gettelfinger said.

In Argentina, workers at a GM plant in western Santa Fe blocked access to the premises to protest more than 100 planned layoffs, after contract negotiations broke down and were postponed by a government mediator to December 26.

Instead of layoffs, union leaders are asking for the plant’s reduced work schedule to be absorbed equally by the plant’s 2 000 workers.

Officials said the loan would be managed by the US Treasury and that no “car czar” would be appointed, but that president-elect Barack Obama would be allowed to designate one after taking office January 20.

Obama called the move “a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers”.

The New York Times said the loans do not guarantee Detroit’s long-term survival. “President-elect Barack Obama’s administration will still have to make hard choices about how to help Michigan’s auto industry shrink and become more energy efficient,” the newspaper warned in an editorial.

But the White House move also drew criticism.

Republican Senator Judd Gregg said the loan was “inconsistent” with the financial rescue Tarp programme and “sets a troublesome new precedent that the next administration may use to expand government control over numerous specific industries that are having troubles during these difficult times”. — AFP