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ANALYSIS

US automakers eye reforms

AFP, Washington
US automakers mulled painful reforms Saturday after President George W. Bush unveiled a 13.1 billion dollar rescue loan for the struggling industry, but demanded tough reforms in return in a move aimed at staving off a new economic calamity.
Tn the midst of a crisis and a recession allowing the US auto industry to collapse is not a responsible course of action," Bush said as he released the package Friday, after weeks of deliberations.
General Motors and Chrysler, facing a threat of imminent bank ruptcy that could create economic chaos and throw millions out of work across tire country, agreed to the terms and will get the loans starting December 29.
GM will get 9.4 billion dollars in two installments through midJanuary and Chrysler up to four billion this month, officials said.
Ford said it would not be part of the loan program, which could include an additional four billion dollars from February for GM pending congressional action.
The funds will come from the Treasury's 700 billion dollar Troubled Asset Relief Program (TARP) approved in October to bail out struggling financial institutions.
The companies have to provide warrants for non-voting stock, accept limits on executive pay and perks and give priority to the government loans over other debts, to the extent permitted by law.
The automakers will have to take steps to demonstrate their viability by March 31 or the government could require the funds to be repaid.
"The automakers and unions must understand what is at stake and make hard decisions necessary to reform,” Bush said.
He added that restructuring the industry would "require meaningful concessions from all involved in the auto industry."
Among the "targets" established by the loan would be a two-thirds reduction in debt by exchanging debt for equity, more flexible work rules and cuts in wages to make the companies competitive with foreign carmakers established on US soil.
"The loan will be automatically called by the government and will be repaid in full if certain conditions are not met" by March 31, a senior administration official said. "The most important one is that the firms must be viable."
Chrysler LLC chairman and chief executive Bob Nardelli his firm "is committed to meeting these (loan) requirements."
General Motors lauded the action and said in a statement: "This action helps to preserve many jobs, and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us.”
But the United Auto Workers union said it would try to reverse "unfair conditions” imposed on workers in the bailout, saying they had already made sharp conces-
sions.
"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," UAW president Ron Gettelfinger said.
In Argentina, workers at a GM plant in western Santa Fe blocked access to the premises to protest more than 100 planned layoffs, after contract negotiations broke down and were postponed by a government mediator to December 26.
Instead of layoffs, union leaders are asking for the plant's reduced work schedule to be absorbed equally by the plant's 2,000 workers.
Officials said the loan would be
managed by the US Treasury and that no "car czar" would be appointed, but that presidentelect Barack Obama would be allowed to designate one after taking office January 20.
Obama called the move "a necessary step to help avoid a collapse in our auto industry that would have devastating consequences for our economy and our workers."
The New York Times said the loans do not guarantee Detroit's long-term survival. "Presidentelect Barack Obama's administration will still have to make hard choices about how to help Michigan's auto industry shrink and become more energy efficient," the newspaper warned in an editorial.
But the White Houe move also drew criticism.
Republican Senator Judd Gregg said the loan was "inconsistent' with the financial rescue TARP program and "sets a troublesome new precedent that the next administration may use to expand government control over numerous specific industries that are having troubles during these difficult times."
Robert Brusca at FAO Economics said the debt-for-equity provision “could suckerpunch the corporate debt market"
Edmun^ds-com analyst Jesse Toprak said the industry may face more trouble if the auto market fails to improve. He expects 9.8 million vehicles to be sold in the coming year but added “no automaker can survive as a viable business in the United States if fewer than 11 million vehicles are sold annually industrywide."