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.

Gorvernor Arnold SchwartzeneggerPlay

"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.

"It is very hard when you have to increase taxes," Schwarzenegger said. "I don't want to do it. I hate taxes. I hate the word taxes and all of those things. But there's certain times when you have to forget about the ideology and, you know, all of this and fix problems."

GOP 'Values' Talk is 'Nonsense'

The Governor also addressed the challenges facing Republicans coming out of the national election. While he was unable to join his colleagues at the Republican Governors Association conference this week, he argued that his party has lost sight of what's important to the future of Americans.

"So many times there's dialogue about, you know, we have to go back to our core values.What is that? What is core? How far does core go back in history in America, the word 'core'?" he asked.

"Does it go back 30 years? Does it go back 50 years? Because we know that Teddy Roosevelt talked about universal health care. So [they've been] off the core for a long time... so I think it's all nonsense talk. I think if they just talk about one thing, [it is] what do we need now?"

Schwarzenegger: Rebuild America

Instead, Schwarzenegger argued the GOP should focus on rebuilding the nation's infrastructure.

"We need to rebuild America, fix the bridges, fix the highways, fix the buildings, tunnels and all of those kinds of things we need to do," he said. "And then we have to go and create great relationships with our partners overseas, with the world, and we have to build those relationships again. And we have to take care of health care. We have to take care of our environment. And we have to build an energy future. Those are the things that people want right now."

On the Obama transition so far, Schwarzenegger commented on rumors that Sen. Hillary Clinton, D-N.Y., is in the running to become secretary of state. The President-elect and his former rival met privately Thursday to discuss the position.

"I think she is a very very bright woman and very experienced. I think this could be a great move," he said.

But he also noted that it's equally important for the president to have a good working relationship with all the members of his Cabinet.

"When it comes to those kinds of positions, what is equally as important, and I know with my Cabinet, what is equally as important as who is qualified, is who can you work with. Who can you sit down with and really get in there and start becoming a partner [with] that sees things the way you see it. And also that you maybe want to learn from that person and admire that person so much that you want to pick up some pointers and learn from that person, so that they together can go out and do this."