Merry Christmas, Detroit.
President Bush swooped to what could be the Big Three's rescue Friday, pledging $13.4 billion in emergency loans for General Motors and Chrysler and another $4 billion in February if they need it. The money will come from the Treasury Department's Troubled Asset Relief Program, since Congress refused to provide the loans the auto manufacturers said they needed to stay in business.
"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," Bush said Friday morning, before the stock market opened. "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."
That sound you heard was every single conservative in Washington smacking their hands on their foreheads at once. Most Republicans had banded together against the bailout, fighting even more frenetically against it than they had against the much larger $700 billion program to save banks and financial firms. (John McCain, who melodramatically suspended his presidential campaign so he could try to save the financial bailout in September -- albeit without much actual effect -- issued a statement opposing Bush's maneuver.) "The action today is disappointing news for autoworkers and taxpayers, who deserve better," said John Boehner, the top House Republican.
But apparently the specter of two major car companies (Ford is in slightly better fiscal health) going out of business as the nation slides further into recession was enough to scare Bush away from his usual Adam Smith-inspired instincts. "There's too great a risk that bankruptcy now would lead to a disorderly liquidation of American auto companies," Bush said. "My economic advisors believe that such a collapse would deal an unacceptably painful blow to hardworking Americans far beyond the auto industry. It would worsen a weak job market and exacerbate the financial crisis. It could send our suffering economy into a deeper and longer recession. And it would leave the next president to confront the demise of a major American industry in his first days of office."
Returning the favor, Barack Obama said Bush had done the right thing. " Today's actions are a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers," Obama said in a statement.
The money isn't without strings attached. The companies will be required to cut their debt rapidly by giving creditors stock, and to negotiate a new contract with the United Auto Workers that cuts pay for workers to match the wages paid by foreign automakers who build cars here. The UAW, which has said workers are bearing an unfair portion of the burden of restructuring the Big Three, said it would ask Obama's administration to amend the requirements after Jan. 20. (At an afternoon press conference, Obama dodged a question about whether he'd be willing to reopen the deal.)
What's still not clear is how quickly the auto makers can actually turn things around. By March 31, if the Obama administration doesn't think Detroit is making progress, they could still slip into bankruptcy. But the loans might mean they'll at least have the chance to try to change.