US/World financial crisis

Carmakers get rescue plan, with conditions

Article published on the 2008-12-20 Latest update 2008-12-20 13:45 TU

Chrysler workers in Warren, Michigan
(Photo: Reuters)

US President George Bush on Friday announced a loan of 13.4 billion dollars (9.6 billion euros) to two of the US's top carmakers, General Motors (GM) and Chrysler. Ford, which has been less affected by the current economic crisis, says it will not take part in the programme. Executives have accepted limits on pay and workers may suffer wage cuts.

"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,”  said Bush, explaining the reversal of his former opposition to state intervention. “These are not ordinary circumstances.”

GM will get 9.4 billion dollars (6.75 billion euros) in two instalments in mid-January, while Chrysler is to get up to four billion dollars (2.8 billion euros) this month.

The funds will come from the Treasury's Troubled Asset Relief Program (Tarp) approved in October to bail out struggling financial institutions.

The companies have agreed to allow the government the right to buy non-voting stock, accept limits on bosses' pay and perks and, in so far as the law allows, give priority to repaying the state loans over other debts.

The loans also establish "targets", including a two-thirds reduction in debt, cuts in wages and tougher working conditions.

The main carworkers' union, the United Autoworkers (UAW), argues that it has already made concessions. It accuses Republican lawmakers of exploiting the crisis to reduce its members'  pay and conditions to the level of those in non-unioin, foreign-owned factories in the south.

"One of the reasons for the Republican Party’s initial refusal in the Senate to back a refinancing plan for the auto industry was because the Republicans in the Senate didn’t want to support the United Auto Workers, which is one of the biggest and most powerful unions in the country," says Paris-based analyst Philip Golub.

UAW President Ron Gettelfinger pinned his hopes on President-elect Barack Obama to prevent the 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," he said.

Obama, who welcomed the deal as "a necessary step", announced his last cabinet appointments on Friday. Free trade advocate Ron Kirk is to become Trade Representative, charged with introducing environmental and labour standards into trade deals.

Democrat Hilda Solis is to be Labor Secretary and republican Ray LaHood is to take charge of transport.