The White House has come to the rescue of beleaguered General Motors and Chrysler by providing them with $17.4 billion in low-interest loans, ABC News has learned.
"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," President Bush said today. "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."
The money for the loans will come from the Troubled Asset Relief Program fund, signed into law this fall to bail out the financial industry.
The Treasury Department will provide $13.4 billion in short-term financing in December and January and plans to make another $4 billion available in February, provided Congress allows the White House to reach into the second half of the $700 billion TARP fund.
The White House has been talking to President-elect Barack Obama's team about its strategy, and the incoming Democratic administration has expressed no objections to the plan, sources told ABC News.
"The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it," Obama said today in a statement.
President-elect Obama will take office on Jan. 20.
Read the White House Fact Sheet on the Loan Deal Here
Under the terms of the deal, GM will get $9.4 billion in December and January while Chrysler will get a $4 billion loan. GM will get another $4 billion in February, according to White House Deputy Chief of Staff Joel Kaplan. The Ford Motor Company is not included because it did not ask for a loan.
The loans come with strings attached, including limits on executive compensation and a ban on the use of corporate jets. The automakers will need to restructure, getting tough concessions from creditors, suppliers and the labor union.
The deal also includes non-binding "target" provisions, including making work rules and wages competitive with workers at foreign car companies in the U.S.
Treasury Secretary Henry Paulson will administer the plan until Jan. 20, at which point there will be another presidential designee to oversee the loans under the new administration.
If the companies cannot prove they are financially viable by March 31, the loans will be recalled and the money returned to the Treasury.
The White House is also calling for no dividends for stockholders until the money is paid back, and stipulating that the government can block transactions over $100 million.
Other non-binding targets of the plan include debt reductions by two-thirds as well as the elimination of jobs banks, a system that allows workers to get paid a large percentage of their wages even when they're not called in to work.
Today Chrysler CEO Bob Nardelli issued a statement saying the company was grateful for the helping hand and said, "Chrysler is committed to meeting these requirements."
GM likewise said the decision "will lead to a leaner, stronger General Motors," adding, "We appreciate the President extending a financial bridge at this most critical time for the U.S. auto industry and our nation's economy."
The United Auto Workers was already talking about altering the deal.
The UAW said it was "disappointed that he has added unfair conditions singling out workers," according to a statement from union president Ron Gettelfinger.
"These conditions were not included in the bipartisan legislation endorsed by the White House, which passed the House of Representatives and which won support from a majority of senators," Gettelfinger said.
"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 U.S. auto industry."
Republicans aren't happy with the president's decision.
Sen. John McCain of Arizona called the plan "unacceptable," and Senate Minority Leader Mitch McConnell of Kentucky says he has "strong objections" to the plan.
Sen. Charles Grassley, R-Iowa, said the measure didn't go far enough to force reform of the car companies.
"I'm not sure the administration's plan passes my test for putting billions of taxpayer dollars at risk," he said. Grassley also warned that "this multi-billion dollar plan will likely be just a small down payment for an industry that has extremely high labor costs and very little to show in assets."
Ford Motor Co. also reacted to the annoucement, even though the company is not part of the deal.
"All of us at Ford appreciate the prudent step the administration has taken to address the near-term liquidity issues of GM and Chrysler," said Ford president and CEO Alan Mulally. "The U.S. auto industry is highly interdependent, and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened U.S. economy."
Pressure had been building for Bush to act. Chrysler temporarily shut down all of its plants earlier this week to save money, and GM delayed construction on a new plant for the same reason. And House Speaker Nancy Pelosi urged Bush on Thursday to make a decision because the nation's weakened economy could not risk a massive wave of layoffs.
Bush and other administration officials publicly worried in recent days about the need to avoid an uncontrolled bankruptcy by the two car companies, and the ethics of intervening in a free market economy. The president voiced those concerns again today.
"On the one hand, government has the responsibility not to undermine the private enterprise system," Bush said. "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," the president said.
Paulson told a business forum in New York Thursday night it was too risky to simply let the automakers fail.
"When you look at the size of this industry and look at all those that it touches in terms of suppliers and dealers… it would seem to be an imprudent risk to take," he said.
For weeks, the carmakers have insisted that they face a real deadline. Pressure grew for a deal as Chrysler announced Wednesday it will close all 30 of its manufacturing facilities in North America until Jan. 19. GM has told lawmakers it needs an infusion of $4 billion in taxpayer loans before the end of the year or the company will go bankrupt.
There was a big sigh of relief from the nation's car dealerships who have been watching helplessly as the White House negotiated with the automakers. Sales were also hurt by consumers' uncertainty that GM and Chrysler would still be around to service any new cars purchased.
"This sends a clear message: Consumers can now consider any car from any manufacturer with confidence," said Annette Sykora, chairman of the National Automobile Dealers Association.
Congress tried to hammer out a deal last week that included a government veto over major decisions by the carmakers if they accepted the federal funds. The bill died in the Senate, however, when Republican senators insisted on sharp cuts in workers pay and benefits.
That left the White House as Detroit's last hope to keep them afloat, at least until the Obama administration can take up the problem.
Republican senators voiced their continued opposition to a bailout of the iconic American companies this week unless GM and Chrysler agreed to major structural changes and concessions from its stakeholders, including labor.
ABC News Rachel Martin, Sunlen Miller, Kate Barrett and Kirit Radia contributed to this report.