US car firms in $17.4bn bail-out; UK industry calls for support
Sun 21 December 2008
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The outgoing US President, George Bush, has announced a $17.4bn (£11.7m) bail-out for General Motors and Chrysler who have been facing bankruptcy. Agreeing a $9.4bn loan to GM and $4bn to Chrysler, Mr Bush said that allowing the US car industry to fail would not be "a responsible course of action."
The bail-out, which is supported in principle by the incoming President Barack Obama, has been agreed by the Government in exchange for promises of reform by GM and Chrysler which involve making themselves financially viable by 31 March 2009. Under the terms of the agreement, a further $4bn will be provided later. The funds will come from the $700 billion programme passed by Congress in October to help the banking industry.
The bail-out is just over half the $34 billion that the carmakers initially requested. Ford, which is reported to be in better financial shape, has withdrawn its earlier request for funding.
Chrysler and GM have said that they will cut wages to similar levels as foreign-owned US carmakers such as Mercedes and Toyota, and also open their books to a government inspector. The United Auto Workers trade union is expected to mount strong opposition to plans to cut wage levels.
Richard Wagoner, GM's chief executive, said the company could become "viable" in the short White House time-frame despite the doubts of some financial analysts.
"There are obviously some big steps we have to take," he said. "Our goal is to reinvent our company."
Some observers are predicting that the loans are not enough, and carmakers will be forced to ask Congress for further funds.
Reported by the BBC, US President-elect Obama urged the carmakers not to "squander this chance to reform bad management practices" in the industry.
"The auto companies must bring all their stakeholders together, including labour, dealers, creditors and suppliers, to make the hard choices necessary to achieve long-term viability."
Meanwhile, Canada has also announced a $3.3bn rescue package for GM and Chrysler subsidiaries operating in Ontario.
The UK industry is also expected to increase its calls for support for UK-based companies following the announcement in the United States.
It has recently been reported that Jaguar Land Rover - now owned by the Indian company, Tata - has been in talks with the Industry Secretary, Lord Mandelson, about support for the company. Lord Mandelson was reported by The Guardian as saying that primary responsibility for Jaguar Land Rover lies with its parent company but that it was too early to judge whether state help would be needed.
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