20 Dec 2008

Car makers face hard choices - Obama

6:01 pm on 20 December 2008

United States president-elect Barack Obama has welcomed a multi-billion dollar aid package for US carmakers, but says the industry faces some "hard decisions".

The US government is to provide $US17.4bn in loans to help General Motors and Chrysler survive.

Mr Obama says the package is necessary 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 says.

The president-elect, who takes office on 20 January, says he will work with both car maker unions and management to rebuild the industry.

He says his top priority is to create 2.5 million new jobs including some in the auto industry.

Govt sets deadline

The US government will use part of the $US700bn 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.

General Motors will get $US9.4bn and Chrysler $US4bn before the end of the year. A further $US4bn will be provided later.

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

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

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

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

Car dealers welcome bail-out

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, the US Treasury Secretary Henry Paulson has urged Congress to authorise the use of the second half of the $US700bn Wall Street bail-out, as the first $US350bn has already been committed.