[Weekly Compilation of Presidential Documents Volume 44, Number 50 (Monday, December 22, 2008)]
[Pages 1568-1570]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
Remarks on the American Auto Industry

December 19, 2008

    Good morning. For years, America's automakers have faced serious 
challenges: burdensome costs, a shrinking share of the market, and 
declining profits. In recent months, the global financial crisis has 
made these challenges even more severe. Now some U.S. auto executives 
say that their companies are nearing collapse, and that the only way 
they can buy time to restructure is with help from the Federal 
Government.
    This is a difficult situation that involves fundamental questions 
about the proper role of Government. On the one hand, Government has a 
responsibility not to undermine the private enterprise system. On the 
other hand, Government has a responsibility to safeguard the broader 
health and stability of our economy.
    Addressing the challenges in the auto industry requires us to 
balance these two responsibilities. If we were to allow the free market 
to take its course now, it would almost certainly lead to disorderly 
bankruptcy and liquidation for the automakers. Under ordinary economic 
circumstances, I would say this is the price that failed companies must 
pay, and I would not favor intervening to prevent the automakers from 
going out of business.
    But these are not ordinary circumstances. In the midst of a 
financial crisis and a recession, allowing the U.S. auto industry to 
collapse is not a responsible course of action. The question is how we 
can best give it a chance to succeed. Some argue the wisest

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pass--wisest path is to allow the auto companies to reorganize through 
Chapter 11 provisions of our bankruptcy laws and provide Federal loans 
to keep them operating while they try to restructure under the 
supervision of a bankruptcy court. But given the current state of the 
auto industry and the economy, Chapter 11 is unlikely to work for 
American automakers at this time.
    American consumers understand why: If you hear that a car company is 
suddenly going into bankruptcy, you worry that parts and servicing will 
not be available, and you question the value of your warranty. And with 
consumers hesitant to buy new cars from struggling automakers, it would 
be more difficult for auto companies to recover.
    Additionally, the financial cross--crisis brought the auto companies 
to the brink of bankruptcy much faster than they could have anticipated. 
And they have not made the legal and financial preparations necessary to 
carry out an orderly bankruptcy proceeding that could lead to a 
successful restructuring.
    The convergence of these factors means there is too great a risk 
that bankruptcy now would lead to a disorderly liquidation of American 
auto companies. My economic advisers believe that such a collapse would 
deal an unacceptably painful blow to hard-working Americans far beyond 
the auto industry. It would worsen a weak job market and exacerbate the 
financial crisis. It could send our suffering economy into a deeper and 
longer recession, and it would leave the next President to confront the 
demise of a major American industry in his first days of office.
    A more responsible option is to give the auto companies an incentive 
to restructure outside of bankruptcy and a brief window in which to do 
it. And that is why my administration worked with Congress on a bill to 
provide automakers with loans to stave off bankruptcy while they develop 
plans for viability. This legislation earned bipartisan support from 
majorities in both Houses of Congress.
    Unfortunately, despite extensive debate and agreement that we should 
prevent disorderly bankruptcies in the American auto industry, Congress 
was unable to get a bill to my desk before adjourning this year.
    This means the only way to avoid a collapse of the U.S. auto 
industry is for the executive branch to step in. The American people 
want the auto companies to succeed, and so do I. So today I'm announcing 
that the Federal Government will grant loans to auto companies under 
conditions similar to those Congress considered last week.
    These loans will provide help in two ways. First, they will give 
automakers 3 months to put in place plans to restructure into viable 
companies, which we believe they are capable of doing. Second, if 
restructuring cannot be accomplished outside of bankruptcy, the loans 
will provide time for companies to make the legal and financial 
preparations necessary for an orderly Chapter 11 process that offers a 
better prospect of long-term success and gives consumers confidence that 
they can continue to buy American cars.
    Because Congress failed to make funds available for these loans, the 
plan I am announcing today will be drawn from the financial rescue 
package Congress approved earlier this fall. The terms of the loans will 
require auto companies to demonstrate how they would become viable. They 
must pay back all their loans to the Government and show that their 
firms can earn a profit and achieve a positive net worth. This 
restructuring will require meaningful concessions from all involved in 
the auto industry--management, labor unions, creditors, bondholders, 
dealers, and suppliers.
    In particular, automakers must meet conditions that experts agree 
are necessary for long-term viability, including putting their 
retirement plans on a sustainable footing, persuading bondholders to 
convert their debt into capital the companies need to address immediate 
financial shortfalls, and making their compensation competitive with 
foreign automakers who have major operations in the United States. If a 
company fails to come up with a viable plan by March 31st, it will be 
required to repay its Federal loans.
    The automakers and unions must understand what is at stake and make 
hard decisions necessary to reform. These conditions send a clear 
message to everyone involved in the future of American automakers: The 
time to make the hard decisions to become viable is now, or the only 
option will be bankruptcy.

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    The actions I'm announcing today represent a step that we wish were 
not necessary. But given the situation, it is the most effective and 
responsible way to address this challenge facing our Nation. By giving 
the auto companies a chance to restructure, we will shield the American 
people from a harsh economic blow at a vulnerable time. And we will give 
American workers an opportunity to show the world once again they can 
meet challenges with ingenuity and determination and bounce back from 
tough times and emerge stronger than before.
    Thank you.

Note: The President spoke at 9:01 a.m. in the Roosevelt Room at the 
White House. In his remarks, he referred to President-elect Barack 
Obama. The Office of the Press Secretary also released a Spanish 
language transcript of these remarks.