Bush announces $13.4 billion bailout for GM, Chrysler
President Bush announced a bailout plan for General Motors Corp. and Chrysler LLC late last week, providing $13.4 billion in federal loans, according to various media reports. Another $4 billion may be provided to the firms in February.
Ford Motor Company has said it does not need immediate aid.
The money for GM and Chrysler will come from the $700 billion set aside in October to bail out Wall Street firms and banks. In addition, Treasury Secretary Henry Paulson said that Congress will need to release the last half of that $700 billion rescue fund because the first $350 billion has been committed.
In explaining his decision to support the auto industry bailout, Bush said, "This is a difficult situation that involves fundamental questions about the proper role of government. On the one hand, government has a responsibility not to undermine the private enterprise system. On the other hand, government has a responsibility to safeguard the broader health and stability of our economy. Addressing the challenges in the auto industry requires us to balance these two responsibilities. If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers. 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 automakers from going out of business. But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action."
Some have said the Big Three U.S. auto firms should reorganize under chapter 11 bankruptcy protection procedures instead of receiving federal bailout money, but Bush said that probably would not work because consumers would be hesitant to buy new cars from a car company in chapter 11 because they would be concerned about their warranty and the future availability of parts and service.
Last week, Chrysler reported that it would idle all of its manufacturing plants for at least a month, including its Kenosha plant, which employs about 800.
