The Bush administration announced a $17.4 billion dollar emergency loan package designed to rescue auto giants General Motors and Chrysler, in direct defiance of Congress’ rejection of the automakers bailout, less than 10 days ago. The move, orchestrated in a perfect storm-like environment, is widely criticized by members of Congress and reflected in public opinion. Using funds previously appropriated by Congress for another bailout– that of the banking industry– the package provides an initial $13.4 billion, and another $4 billion that could be available if the automakers meet certain conditions. As widely reported, GM, a publicly held firm, and Chrysler, a private company recently disengaged from German auto firm Daimler, are close to running out of cash, and possibly hitting bankruptcy and insolvency. Ford has stated that it is in a considerably better situation than the its two closest competitors and is not taking part of the emergency plan funding. The plan is designed to keep the two automakers in operation up until the first quarter of 2009. The loan package calls for close scrutiny, achieved milestones, and a evaluation after the first quarter of 2009 that will determine if more funding will be provided for. It is estimated by industry experts that as much as $75 to $100 billion will be needed to save the auto manufacturers, and only if the Detroit firms can drastically and quickly change their business models and product offerings in the highly competitive industry. Many have stated the deal is throwing good money into a failing industry that has still not hit bottom and bad management in control. In the event that the automakers do not meet the stringent requirements, the loans will be callable by the Federal Reserve immediately and the automakers will be required to file bankruptcy, mudding the logics of how then they would replay the initial 13.4 billion dollars in taxpayer funds on a timely basis– despite the fact the that government would have first position on asset sales to pay off the debt.

The funds, obtained from the $700 billion treasury fund were originally approved by Congress for the specific purpose of rescuing the banking industry. Much of that effort has not produced measured results to the liking of Congress and the economists monitoring the effort. Congress needs to release the remaining $350 billion from the fund in order for the administration to ink the deal with automakers. This rescue effort, originally intended for purchasing toxic securities, then liquefying credit for banks, is now oriented towards automakers and being diverted to much controversy. The current lame duck Congress, recessed for the year, is in a disadvantaged position to confront the administrations moves, and time for the automakers is quickly running out. While congress is expected to reconvene for the release of the $350 billion amount, little else is expected to be addressed. While the demise of the U.S. auto industry is expected to cause major unemployment in the U.S., have far reaching negative economic impact upon the country, and directly damage thousands of American workers, much public opinion grapples with the knowledge that the Detroit executives have not run their companies in an efficient manner, have produced product models that are off the mark from customer needs and wants, and costs from production worker to the boardroom have been excessive.

By law, the Federal Reserve chairman Hank Paulson, under the terms of the original $700 billion bailout, has to make a formal request for the remaining $350 billion funds. Once formally made, Congress has 15 days to accept or reject the deal. It is unknown when that request would be formally sent to the Congress or if lawmakers who have left Washington for the holidays would return to debate it. It has been reported that several members of Congress oppose the release of money for this purpose as the initial plan was killed in the Senate. Although the House of Representatives passed the legislation, the bill did not pass in the Senate. The Bush administrations plan is said to closely resemble the House version of the bill that passed.

Touting a failing economy, a deep recession, and rising unemployment, the Bush administration issued statements to the affect of that in other circumstances, a bailout would not be appropriate for bad business practices on behalf of the automakers, but the dire economic picture of the country is reason for this measure. Many media sources indicated that the Bush administration did not want the entire auto industry to collapse under its watch. When the discussion of bankruptcy filings has come into play, many arguments to the affect of customers would not purchase cars from a bankrupt carmaker surfaced and therefore, not being a workable alternative.

The loan deal requires GM and Chrysler to reduce their debt by two-thirds– estimated to be $13.5 billion– mostly through debt-for-equity swaps, and to reach an agreement with unions, specifically the United Auto Workers union to cut wages and benefits. It is said that the two automakers’ labor cost structure is considerably higher than that of foreign-based automakers in the United States such as Honda. Further requirements include restrictions on executive pay, elimination of major executive perks like corporate jets, and bonus programs that reward executives even as the entities lose market share and experience significant financial losses.

Much has been written and discussed in the media about the nationalization effort of the auto industry by the government. The U.S. policy has often been to chide European industries in the past such as airline, transportation, and auto makers for running government subsidy operations and not letting the market determine winners and losers in the marketplace. The initial nationalization effort of the banking industry over the past few months, along with some wall street insurance firms like AIG, and now the auto industry, has many thinking that the capitalistic society of the U.S. is behaving more like a socialistic government. With no new solutions, this behavior seems to be a progressive one, somewhat ironically rising from a Republican administration that has been a major supporter of deregulation and is free market-oriented. The incoming Obama administration will be handled a complex situation with little or no wiggle room to tweak a solution once it takes office in January of 2009.

GM and Chrysler recently announced drastic operational and production cutbacks, including an extension of the normal holiday-season idling of factories, with some operations to be suspended for 30 to 60 days. Honda and Ford have also announced production cutbacks.