Page last updated at 06:15 GMT, Saturday, 20 December 2008

Obama urges carmakers to 'reform'

Barack Obama: 'Companies must not squander this chance to reform'

US President-elect Barack Obama has welcomed the multi-billion dollar aid package for US carmakers, but said the industry faced some "hard decisions".

The US government is to provide $17.4bn (11.6bn) in loans to help General Motors and Chrysler survive.

Mr Obama said the package was a "necessary step" to "help avoid a collapse" in the industry.

But he urged carmakers not to "squander this chance to reform bad management practices".

"With the short-term assistance provided by this package, the auto companies must bring all their stakeholders together... to make the hard choices necessary to achieve long-term viability," Mr Obama said.

'Grim-faced president'

The US government will use part of the $700bn originally pledged to rescue US banks to aid the car industry. It has set a deadline of 31 March for the firms to become viable.


These loans were desperately needed before the end of December, because the situation for the automakers is so critical

Dennis Virag, Automotive Consulting Group


General Motors will get $9.4bn and Chrysler $4bn before the end of the year. A further $4bn will be provided later.

Ford has said it hopes to get by without government help.

Announcing the package, President George W Bush said allowing the US car industry to fail would not be "a responsible course of action".

It was a candid announcement from a grim-faced president, says the BBC's Justin Webb, in Washington.

GM CEO Rick Wagoner thanks President Bush for the bail-out

Mr Bush has made it clear he believes the free market should normally be allowed to take its course, but he has listened as well to the voices telling him that this could be catastrophic, our correspondent says.

The car makers have argued that even an orderly bankruptcy would send them out of business forever, with the loss of millions of American jobs.

GM Chief Executive Rick Wagoner said his company would focus on "fully and rapidly implementing the restructuring plan that we reviewed with Congress earlier this month".

"It's really the blueprint for a new General Motors, one for our second 100 years," he said.

Situation 'critical'

One of the conditions of the loans is that the companies renegotiate pay and pension packages with staff.

The United Auto Workers (UAW) union said it was unfair to demand stiff concessions from the workers.

"When I listen to them talking about restructuring they want it all to be borne on the backs of the workers," union activist and retired GM worker Gregg Shotwell told the BBC.

"Now 8% of the cost of assembling a vehicle is labour. What about the other 92%? That's where the waste and mismanagement and fraud comes in."

The package announced by Mr Bush does not need Congressional approval, as it is part of the existing $700bn financial bail-out programme.

An attempt to secure a $14bn (9.4bn) rescue fund for the carmakers was rejected by the US Senate last week.

Bush: 'Bankruptcy would not be responsible'

"Under ordinary economic circumstances, I would say this is the price that failed companies must pay," Mr Bush said.

"But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the US auto industry to collapse is not a responsible course of action."

Car dealers, some of whom have been waiting for payments from the manufacturers, welcomed the bail-out.

"The question now is how to excite consumers to buy cars from January to March. We're all sitting on millions of dollars of unmoving cars," said Raymond Ciccolo, a GM dealer in Boston.

"These loans were desperately needed before the end of December, because the situation for the automakers is so critical," said Dennis Virag at Automotive Consulting Group.

Meanwhile, US Treasury Secretary Henry Paulson urged Congress to authorise the use of the second half of the $700bn Wall Street bail-out, as the first $350bn had already been committed.

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