Friday morning shares of Ford Motor Co. and General Motors Corp. surged on Wall Street (with private owned Chrysler cheering in the background) as news of President Bush’s $17.4 billion auto industry bailout sunk in with investors.  The President approved the immediate release of $13.4 billion from the $700 billion Troubled Asset Relief Program (TARP) Congress approved in October.  Some of the $13.4 billion will be available as early as Friday to GM and Chrysler.  Ford has stated that it has enough cash to continue operations through 2009, but requested a $9 billion line of credit in case market conditions worsen, or one of the other two U.S. automakers goes under. 

The release of the additional $4 billion of the $17.4 billion package will depend on whether Congress approves use of the second half of the $700 billion TARP fund; a move which Treasury Secretary Henry Paulson called for Friday morning.  The initial $13.4 billion allotted to the ailing automakers marks the depletion of the first $350 billion of the Congress approved bailout package. 

Despite much rejoicing on Wall Street and with those who pushed for the $15 billion bailout that fizzled in the Senate last week, it was not all smiles in Washington.  Some congressional republicans criticized Friday’s announcement.  House GOP leader John Boehner of Ohio stated: 

The deal is disappointing news.  By using the funds from the Troubled Asset Relief Program Washington has failed both autoworkers and taxpayers.

Democrats supported the $15 billion auto bailout by a sizable majority in both the House and the Senate, but were stymied by Republicans who wouldn’t support the Democrat drafted bill. 

The whole situation has produced mixed feelings towards both parties, as it was Republicans who supported a $25 billion auto bailout back in November, and then criticized Democrats who delayed the bailout pending formalized business plans from the U.S. automakers.  Republicans then refused to approve the $15 billion auto bailout that Democrats drafted last week, citing various infractions.  The final approval on the bailout then comes from a Republican President and draws criticism from congressional Republicans; what an end to a long, strange journey through Washington.

The real oddity of the controversy surrounding the auto bailout is that most members of both parties voiced their staunch support for it at one point, and opposed it at another; but it seems that all approved of an auto bailout under the right conditions.  However it’s still remarkable that the final decision on the bailout fell to one of the most unpopular Presidents on record.  President Bush drew more widespread support than he has witnessed in years with his decision to approve the bailout.  In a press conference following his announcement Friday morning, the President stated:

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.

Though it might seem like the U.S. government is throwing the automakers a lifeline with little concern towards their investment, a number of conditions have been named to promote future economic health. 

The circumstances by which the U.S. automakers will receive the bulk of the $17.4 billion bailout are substantial, and several mirror the conditions outlined in the Democratic proposal drafted last week.  The government appointed ‘car czar’ clause is still in effect, and Treasury Secretary Henry Paulson will be monitoring the automaker’s progress until another individual can be appointed by the incoming Obama administration.  GM and Chrysler will also be required to provide the government with stock warrants allowing it to purchase GM and Chrysler stock at a specific price. 

In addition, the automakers will need to put forth significant effort towards restructuring their companies, including limiting executive pay, selling off corporate jets, and providing a plan for long term viability by March 31, 2009.  If the plan is deemed unsuitable, the automakers will be required to repay the $17.4 billion loan at that juncture; an action liable to force GM and Chrysler into bankruptcy. 

President Bush’s $17.4 billion loan also called for concessions from the United Auto Workers union (a demand that sparked anger with several Republican constituents supported by the UAW).  The bailout ordered the elimination of a ‘jobs bank’ program under which laid-off workers can receive about 95% of their pay for years after their employment has been terminated.  The UAW agreed to suspend the program earlier this month. 

The U.S. automakers announced extended holiday shutdowns of production plants and factories to avoid producing more vehicles than they could hope to sell, but it remains to be seen whether they can make a return to profitability even with the loan.  General Motors C.E.O. Richard Wagoner stated:

We know we have much work in front of us to accomplish our plan.  It is our intention to continue to be transparent as we execute our plan, and we will provide regular updates on our progress.

The road ahead for the U.S. auto industry will be rocky and fraught with obstacles, but in a distant future the bailout provides hope that America might thank President Bush for at least one decision.

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