Friday December 19, 04:00 PM
TEXT-Bush outlines U.S. auto rescue plan
Dec 19 (Reuters) - Following are excerpts from a statement
by President George W. Bush about a $17.4 billion rescue plan
to assist Detroit automakers:
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.
The question is how we can best give it a chance to succeed.
Some argue the wisest path is to allow the auto companies to
reorganize through Chapter 11 provisions of our bankruptcy laws
-- and provide federal loans to keep them operating while they
try to restructure under the supervision of a bankruptcy
court.
But given the current state of the auto industry and the
economy, Chapter 11 is unlikely to work for American automakers
at this time.
American consumers (ANCS.PK - news) understand why: If you hear that a car
company is suddenly going into bankruptcy, you worry that parts
and servicing will not be available, and you question the value
of your warranty. And with consumers hesitant to buy new cars
from struggling automakers, it would be more difficult for auto
companies to recover.
Additionally, the financial crisis brought the auto
companies to the brink of bankruptcy much faster than they
could have anticipated -- and they have not made the legal and
financial preparations necessary to carry out an orderly
bankruptcy proceeding that could lead to a successful
restructuring.
The convergence of these factors means there's too great a
risk that bankruptcy now would lead to a disorderly liquidation
of American auto companies. 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.
A more responsible option is to give the auto companies an
incentive to restructure outside of bankruptcy -- and a brief
window in which to do it. And that is why my administration
worked with Congress on a bill to provide automakers with loans
to stave off bankruptcy while they develop plans for viability.
This legislation earned bipartisan support from majorities in
both houses of Congress.
Unfortunately, despite extensive debate and agreement that
we should prevent disorderly bankruptcies in the American auto
industry, Congress was unable to get a bill to my desk before
adjourning this year.
This means the only way to avoid a collapse of the U.S.
auto industry is for the executive branch to step in. The
American people want the auto companies to succeed, and so do
I. So today, I'm announcing that the federal government will
grant loans to auto companies under conditions similar to those
Congress considered last week.
These loans will provide help in two ways.
First, they will give automakers three months to put in
place plans to restructure into viable companies -- which we
believe they are capable of doing.
Second, if restructuring cannot be accomplished outside of
bankruptcy, the loans will provide time for companies to make
the legal and financial preparations necessary for an orderly
Chapter 11 process that offers a better prospect of long-term
success -- and gives consumers confidence that they can
continue to buy American cars.
Because Congress failed to make funds available for these
loans, the plan I'm announcing today will be drawn from the
financial rescue package Congress approved earlier this fall.
The terms of the loans will require auto companies to
demonstrate how they would become viable. They must pay back
all their loans to the government, and show that their firms
can earn a profit and achieve a positive net worth.
This restructuring will require meaningful concessions from
all involved in the auto industry -- management, labor unions,
creditors, bondholders, dealers, and suppliers.
In particular, automakers must meet conditions that experts
agree are necessary for long-term viability - including
putting their retirement plans on a sustainable footing,
persuading bondholders to convert their debt into capital the
companies need to address immediate financial shortfalls, and
making their compensation competitive with foreign automakers
who have major operations in the United States. If a company
fails to come up with a viable plan by March 31st, it will be
required to repay its federal loans.
The automakers and unions must understand what is at stake,
and make hard decisions necessary to reform, These conditions
send a clear message to everyone involved in the future of
American automakers: The time to make the hard decisions to
become viable is now -- or the only option will be bankruptcy.
The actions I'm announcing today represent a step that we
wish were not necessary. But given the situation, it is the
most effective and responsible way to address this challenge
facing our nation.
By giving the auto companies a chance to restructure, we
will shield the American people from a harsh economic blow at a
vulnerable time. And we will give American workers an
opportunity to show the world once again they can meet
challenges with ingenuity and determination, and bounce back
from tough times, and emerge stronger than before.
Keywords: AUTOS/BAILOUT TEXT
(Washington equities desk, +1 202 898 8467)
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