The Bush administration simply wasn’t willing to stand by and watch the American auto industry financially collapse — the stakes were too huge.
So the administration committed Friday to step in and help avoid the collapse of the industry that was once the backbone of the nation’s economy. Administration officials are talking with those automakers about conditions that must be met to get the aid and have not made final decisions on the size or duration of the help.
"A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," Bush spokeswoman Dana Perino said. She noted that in normal times the administration would prefer to let the markets determine the fate of private firms, but these times are far from normal.
She said that because of the current state of the economy the administration would consider various options, including use of the TARP program, which has been aimed at bailing out the nation’s finance system. TARP is the $700 billion Troubled Assets Recovery Program, the financial industry bailout plan enacted in October and the White House has long insisted that money should be reserved for stabilizing markets.
Perino said that while "the federal government may need to step in to prevent an immediate failure, the auto companies, their labor unions, and all other stakeholders must be prepared to make the meaningful concessions necessary to become viable."
The White House comments were welcomed by Sen. Carl Levin, D-Mich.
"The effort to provide emergency bridge loans to U.S. automakers is still very much alive," Levin said. "I am encouraged that the White House said today that they will consider other options to assist the auto companies, including use of the TARP program."
Wall Street rebounded from an early sell-off Friday to finish in positive territory after word that the government would assist U.S. automakers.
General Motors Corp. and Chrysler LLC have warned they are running out of cash and face bankruptcy without some form of assistance. Ford Motor Co., which is in somewhat better shape financially, has been seeking access to a line of credit.
Highlighting those difficulties, GM announced Friday it would cut another 250,000 vehicles from its first-quarter production schedule — a third of its normal output — by temporarily closing 20 factories across North America. The move affects most plants in the U.S., Canada and Mexico. Many will be shut the whole month of January.
Congressional efforts to aid the industry ran aground Thursday. The White House and congressional Democrats agreed on a $14 billion measure that would have extended short-term financing to the industry while establishing a powerful new "car czar" to make sure the money was used to turn the Big Three into competitive companies. That bill passed the House on Wednesday but immediately ran into opposition from Senate Republicans who said it did not go far enough.
On Thursday, the GOP lawmakers demanded the United Auto Workers union agree to accept a lower pay and benefits package that would be in line with compensation earned by workers at U.S. factories producing cars for Japanese companies such as Honda, Toyota and Nissan. Those companies have plants in the states represented by some of the most ardent critics of bailing out Detroit. The effort ultimately collapsed when the UAW balked at the terms demanded.
"We’ve already stepped forward and made enormous concessions," UAW President Ron Gettelfinger said Friday at a news conference. "But as we made it clear … , we were prepared to make further sacrifices. But we could not accept the effort by the Senate GOP caucus to single out workers and retirees for different treatment and to make them shoulder the entire burden of any restructuring."
Sen. Bob Corker, R-Tenn., who played a leading role in the Republican effort, said the likelihood that the White House would step in probably made sure there would be no deal with the UAW.
And Sen. Richard Shelby, R-Ala., who has been one of the most strident critics of bailing out the Big Three, said any plan by the Bush administration to give the automakers TARP money should require them to restructure their companies.
"If they’re going to give them TARP money, this administration ought to have the courage in its last 40 days to stand up and say, If you’re going to get that money, you’re going to restructure,"he told CNBC. "I don’t believe the Bush administration will do that."