Schwarzenegger With Obama on Auto Bailout

As Congress heads into a lame-duck session to debate aid to the auto industry, California Gov. Arnold Schwarzenegger said he supports the bailout for the Big Three automakers backed by President-elect Barack Obama -- but only if the industry reforms itself.

In an exclusive interview on "This Week with George Stephanopoulos," Schwarzenegger suggested autoworkers' pay and benefits need to be cut back.

"I think it's very important to not just put money in. But let's go and see if they have been fiscally responsible, and if they're really operating the right way; because right now, all of those -- you know, if you pay the auto workers or the benefits and all of those things, [those] are maybe too high," he said of the proposal backed by Democratic leaders in Congress.

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"Right now, if you compare to Germany and to Japan and to other countries, they can build cars cheaper. And they don't have that overhead with the amount of what they pay to the workers, the benefits they provide. Where like, in America, you sell a car, and you have $2,000 of each car just goes to benefits," Schwarzenegger said.

"So I think that there's a way of reducing all of that, make them more fiscally responsible. And then, if they have to act together and have renegotiated those deals, then yes, you can go in there and help them out financially."

Schwarzenegger: States Need Bailout Too

In addition, Schwarzenegger proposed the federal government should give deficit-laden states like California $5 billion a year for the next three years.

"I propose that we should get help from the federal government, if we can -- again, also, like the car manufacturers -- can prove that we have a fiscal housing order, and that we can solve our problems ourselves. But give us in this emergency kind of a situation or in this crisis, some additional money," he said.

"Washington is collecting from California so much money, that they are giving us 80 cents on the dollar. So I think when we are in a state of emergency like this, I think that Washington can give some of that money to the state. And we're not talking about a lot of money, but maybe $5 billion a year for the next three years until we get out of this economic crunch that we're in."

Schwarzenegger: 'They're Living in a Fantasy World'

Schwarzenegger, who has called California legislators back to hammer out a solution to the state's runaway deficit of nearly $28 billion, said that industries and governments must cut back.

"Anyone that wants to go and think that they don't have to shift down and make changes -- if it is states, if it is local government, if it is the auto industry, or any other industry as far as that goes -- they're living in a dream world or in a fantasy world. You've got to recognize that this is the time now to renegotiate and do work in a different way." he said.

"We've got to find ways to cut down, because there's not that much money around right now. It's a different world."

The California budget crisis has forced the anti-tax governor to abandon his no new taxes pledge. Schwarzenegger has proposed more than $10 billion in spending cuts and $14 billion in tax increases, including a 1 1/2-cent temporary increase in the sales tax -- which critics say could further curtail spiraling consumer spending.

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