By JOHN D. MCKINNON
The White House announced a $17.4 billion rescue package for the troubled Detroit auto makers that allows them to avoid bankruptcy and leaves many of the big decisions for the incoming Obama administration.

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Reuters
President George W. Bush comments on loans to troubled Detroit auto maker on Friday morning.
In a statement, President George W. Bush said the administration decided against forcing a bankruptcy to compel cost-cutting, in order to avoid the risk that consumers would desert one or more of the companies and touch off an industry collapse, deepening the current economic downturn.

"In the midst of a financial crisis...allowing the U.S. auto industry to collapse is not a responsible course of action," Mr. Bush said.

The deal would extend $13.4 billion in loans to General Motors Corp. and Chrysler LLC in December and January, with another $4 billion likely available in February. It also would provide the government with non-voting warrants, although the exact amount was unclear immediately.

The deal is contingent on the companies' showing that they're financially viable by March 31. If they're not financially viable, the loans will be called and all funds must be returned, officials said.

The deal generally tracks key provisions of the bailout legislation that nearly passed Congress earlier this month. But it is relatively lenient in allowing the companies to show their viability. It defines viability as having a positive net present value -- a way of gauging the companies' worth, taking into account all their future obligations.

Notably, it provides significant flexibility to the companies in showing their viability. It sets out targets for the companies to hit in determining their financial health, such as reducing debt and current cash payments for future health care obligations.



One potential move that could help the companies achieve some savings: the companies will be required to reach new agreements with major stakeholders, including dealers and suppliers, by March 31.

Determining viability apparently will be up to the Obama administration. The agreement designates a person to oversee the government's effort, although officials stopped short of referring to that as a "car czar." For the outgoing Bush administration, that person will be Treasury Secretary Henry Paulson. President-elect Barack Obama will choose his own point person later.

Previously, the Bush administration planned to coordinate with the Obama camp on selection of a car czar who would continue to serve.

Overall, the deal appeared to represent a modest step in the administration's efforts to put the auto makers on a long-term path to viability. By forsaking a trip to bankruptcy court, the White House gave up its most powerful weapon to extract concessions from the companies and their workers, suppliers, dealers and creditors.

But it likely will achieve what officials recognized as a more important -- and perhaps conflicting -- goal: preventing a collapse of one of the country's most important industries, at a time of broad economic weakness.

In an appearance on Thursday, Mr. Bush appeared to allude to the conundrum: "I think under normal circumstances, no question the bankruptcy court is the best way to sort through credit and debt and restructuring," he said. "These aren't normal circumstances, that's the problem."

The administration was particularly worried about what it termed a "disorderly" collapse of the industry.

"We lost 533,000 jobs last month," Mr. Bush said. "What would another million jobs lost do to the economy? What would that do to the psychology in markets? What would that do -- how would that affect the working people? And so as you can tell, we're all in, in this administration. And if need be, we'll be in for more."

—The Associated Press contributed to this article.
Write to John D. McKinnon at john.mckinnon@wsj.com

dietrich wrote:

I would have rather seen the US government take over the pension/retiree health care program than a bailout loan, even though it would cost the taxpayer more.

Necros wrote:My 401k has been sucking bad lately. I'm almost tempted to take it all and dump it in a regular savings account and I'll just add to it myself

dietrich wrote:In the US, that's a 401k. The money is 'yours' and the company can't get at it. A pension, in the US, is money that the company has to pay out. Now, good companies set up pension plans to work off investments, so they pay for themselves. But, especially in years where the stock market drops, the company may have to put money into the pension plan to prop it up.

Miguelsan wrote:

dietrich wrote:In the US, that's a 401k. The money is 'yours' and the company can't get at it. A pension, in the US, is money that the company has to pay out. Now, good companies set up pension plans to work off investments, so they pay for themselves. But, especially in years where the stock market drops, the company may have to put money into the pension plan to prop it up.

But if the money is "yours" as you say how come that in some cases, Bearn Stearns I think, the company used that fund as a collateral? Or are you talking about a different pension fund?

M.