socialize_me
12-19-2008, 09:45 AM
NEW YORK (CNNMoney.com) -- President Bush announced a rescue plan for General Motors and Chrysler LLC Friday morning that will make $13.4 billion in federal loans available almost immediately.
A senior administration official briefing reporters said he expects that GM (GM, Fortune 500) and Chrysler LLC will be signing the loan papers to access the cash later Friday morning.
The money will come from the $700 billion fund set aside to bailout Wall Street firms and banks in October.
With these loans, Treasury will have committed virtually all of the $350 billion of that fund that it can hand out without additional authorization from Congress. Once Congress releases the other $350 billion, the two automakers will be able to borrow an additional $4 billion.
The loans are for three years but the money will have to be repaid immediately if the firms do not show themselves to be viable by March 31. It is expected that the companies will have to negotiate new agreements with unions and creditors in order to do so.
During brief remarks at the White House, President Bush said in normal times he would have not been in favor of preventing a bankruptcy of the two companies. But the current state of the economy and credit markets left him no choice but to act.
"Government has a responsibility to safeguard the broader health and stability of our economy," he said. "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."
"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," Bush added.
GM and Chrysler immediately issued statements thanking the administration for taking action.
"We know we have much work in front of us to accomplish our plan," GM said. "We thank the Administration for this important support of our industry at this challenging time, and we look forward to proving what American ingenuity can achieve."
Conditions similar to auto bailout bill
The terms of the loan are similar to those set in the auto bailout legislation that was passed by the House last week but was shot down in the Senate. Executives at GM and Chrysler must agree to limits on their compensation and eliminate perks such as corporate jets. The companies also must issue warrants, which convert into non-voting stock, to the government.
The loans do not include the concept of a so-called "car czar" to oversee the automakers, although it does say that a designee of the President would determine if the automakers are making the changes necessary for them to be considered viable.
The Bush administration official said that Treasury Secretary Henry Paulson would fill that role in the remaining days of the current administration.
The loans call for the automakers to prove they are viable by March 31, even though they are not expected to be profitable by that date.
The government wants the automakers reduce their debt load by two-thirds via a debt for equity exchange with current bondholders and get the United Auto Workers union to agree to wages and work rules competitive with non-union plants operated by Asian auto manufacturers by the end of next year.
In addition, the government is calling for GM and Chrysler to use their stock to pay for half the funds needed to cover future retiree health care expenses, which will be paid by union-controlled trust funds, rather than the automakers themselves, starting in 2010.
But there is flexibility for the companies and the incoming Obama administration to allow the loans to continue even if these targets are not reached, as long as GM and Chrysler can provide an explanation as to why they are viable without hitting those targets.
Republican senators demanded hard targets for labor union concessions and cited the UAW's resistance to agree to them as the reason the bill died last week.
But a Bush administration spokesman said there should be flexibility in the negotiations that will take place in the next three months between the automakers and the union.
"We do not feel it is appropriate for government to dictate the specific terms of negotiations between management and labor or management and dealers or management and creditors," the official said.
Time was running out
GM (GM, Fortune 500) has warned it will fall below the minimum amount of cash it needs to continue to operate without $4 billion in federal loans before the end of the month. Privately held Chrysler said it will need $4 billion or it will also run out of cash early next year.
Ford Motor (F, Fortune 500) has more cash on hand and has said it should be able to avoid tapping into federal dollars unless the weak auto sales continue longer than it expects in 2009.
Shares of GM soared more than 10% Friday morning on the news of the loan and Ford was up 5%.
U.S. auto sales plunged to 26-year lows last month as tight credit, rising job losses and weak consumer confidence have led to a virtual collapse in the auto market.
All of the major automakers, including Asian automakers Toyota Motor (TM) and Honda Motor (HMC), are cutting back production. But the situation is particularly severe at GM and Chrysler.
In the last week, those two automakers announced shutdowns of assembly lines for at least a month, several weeks longer than the typical shutdowns during the December holiday season.
Soooo...where does Bush get this authority??? Executive orders?? This is fucking disgusting...they go to Congress and it gets stonewalled, then they just say "fuck it" and go ahead and bypass Congress anyway. Congress is full of pieces of shit, but they don't even bother with them now.
A senior administration official briefing reporters said he expects that GM (GM, Fortune 500) and Chrysler LLC will be signing the loan papers to access the cash later Friday morning.
The money will come from the $700 billion fund set aside to bailout Wall Street firms and banks in October.
With these loans, Treasury will have committed virtually all of the $350 billion of that fund that it can hand out without additional authorization from Congress. Once Congress releases the other $350 billion, the two automakers will be able to borrow an additional $4 billion.
The loans are for three years but the money will have to be repaid immediately if the firms do not show themselves to be viable by March 31. It is expected that the companies will have to negotiate new agreements with unions and creditors in order to do so.
During brief remarks at the White House, President Bush said in normal times he would have not been in favor of preventing a bankruptcy of the two companies. But the current state of the economy and credit markets left him no choice but to act.
"Government has a responsibility to safeguard the broader health and stability of our economy," he said. "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."
"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," Bush added.
GM and Chrysler immediately issued statements thanking the administration for taking action.
"We know we have much work in front of us to accomplish our plan," GM said. "We thank the Administration for this important support of our industry at this challenging time, and we look forward to proving what American ingenuity can achieve."
Conditions similar to auto bailout bill
The terms of the loan are similar to those set in the auto bailout legislation that was passed by the House last week but was shot down in the Senate. Executives at GM and Chrysler must agree to limits on their compensation and eliminate perks such as corporate jets. The companies also must issue warrants, which convert into non-voting stock, to the government.
The loans do not include the concept of a so-called "car czar" to oversee the automakers, although it does say that a designee of the President would determine if the automakers are making the changes necessary for them to be considered viable.
The Bush administration official said that Treasury Secretary Henry Paulson would fill that role in the remaining days of the current administration.
The loans call for the automakers to prove they are viable by March 31, even though they are not expected to be profitable by that date.
The government wants the automakers reduce their debt load by two-thirds via a debt for equity exchange with current bondholders and get the United Auto Workers union to agree to wages and work rules competitive with non-union plants operated by Asian auto manufacturers by the end of next year.
In addition, the government is calling for GM and Chrysler to use their stock to pay for half the funds needed to cover future retiree health care expenses, which will be paid by union-controlled trust funds, rather than the automakers themselves, starting in 2010.
But there is flexibility for the companies and the incoming Obama administration to allow the loans to continue even if these targets are not reached, as long as GM and Chrysler can provide an explanation as to why they are viable without hitting those targets.
Republican senators demanded hard targets for labor union concessions and cited the UAW's resistance to agree to them as the reason the bill died last week.
But a Bush administration spokesman said there should be flexibility in the negotiations that will take place in the next three months between the automakers and the union.
"We do not feel it is appropriate for government to dictate the specific terms of negotiations between management and labor or management and dealers or management and creditors," the official said.
Time was running out
GM (GM, Fortune 500) has warned it will fall below the minimum amount of cash it needs to continue to operate without $4 billion in federal loans before the end of the month. Privately held Chrysler said it will need $4 billion or it will also run out of cash early next year.
Ford Motor (F, Fortune 500) has more cash on hand and has said it should be able to avoid tapping into federal dollars unless the weak auto sales continue longer than it expects in 2009.
Shares of GM soared more than 10% Friday morning on the news of the loan and Ford was up 5%.
U.S. auto sales plunged to 26-year lows last month as tight credit, rising job losses and weak consumer confidence have led to a virtual collapse in the auto market.
All of the major automakers, including Asian automakers Toyota Motor (TM) and Honda Motor (HMC), are cutting back production. But the situation is particularly severe at GM and Chrysler.
In the last week, those two automakers announced shutdowns of assembly lines for at least a month, several weeks longer than the typical shutdowns during the December holiday season.
Soooo...where does Bush get this authority??? Executive orders?? This is fucking disgusting...they go to Congress and it gets stonewalled, then they just say "fuck it" and go ahead and bypass Congress anyway. Congress is full of pieces of shit, but they don't even bother with them now.