White House Approves $13.4 Billion in Loans for GM and Chrysler
By Jason Simpkins
Associate Editor
Money Morning
General Motors Corp. (GM) and Chrysler LLC will receive $13.4 billion in loans from the federal government as part of an emergency measure to keep the companies operating at least until the spring.
“These are not ordinary circumstances, in the midst of a financial crisis and a recession allowing the U.S. auto industry to collapse is not a responsible action,” said President Bush, who made the final decision to move ahead with the bailout after Senate Republicans last week balked at passing a House-approved rescue of the auto companies.
“Chapter 11 is unlikely to work for the American automakers at this time,” he added.
The $13.4 billion will be taken from the Troubled Asset Relief Program (TARP). GM and Chrysler will then get an additional $4 billion in February.
However, both companies are being forced to accept a number of conditions that include limiting executive pay, reducing debt obligations, and striking new agreements with the United Auto Workers union that bring employee wages and benefits down to levels that are more competitive with those of foreign-based automakers working in the United States.
The companies will also provide the government with warrants for non-voting stock, and federal officials will examine all of the companies’ financial statements. The government has the authority to block any transaction of $100 million or more.
The government’s debt will have priority over all other debts, and if the two automakers fail to demonstrate financial viability by March 31, the loans will be called and the money returned. That’s a tall order for GM and Chrysler, which are faced with plummeting sales and a harsh economic environment.
GM, the nation’s largest automaker, has suffered roughly $73 billion in losses since 2004, and its U.S. sales are down 22% this year, Bloomberg News reported. The company said earlier this month that light vehicle sales plunged 41% in November, dropping to 153,404 vehicles from 261,273 during the same month a year ago.
Chrysler sales were off 47% last month and down 28% through the first 11 months of the year. The company yesterday (Thursday) announced that it would close all 30 of its North American manufacturing plants for four weeks. GM followed suit temporarily closing 20 factories.
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"I’ve been in this business since the time of Lee Iacocca and all the bad times we went through in the 1980s were nothing compared to this," Tim Finegan, owner of a Chysler dealership told The Associated Press. "But for now, our lights are still on and our bills are paid, so you just show up every morning and say maybe today will be a little better."
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Comment by Gerald Spencer on 19 December 2008:
Let us continue Auto Industry bad behavior and outright theft of company money with billions of taxpayer dollars?
Who is going to buy a vehicle from a bankrupt manufacturer when the bankruptcy court will allow the manufacturer out of their warranty contracts with the vehicle purchaser? It is too late for Chapter 11 reorganization. There is nothing left after these brilliant executives and their unions bled their companies to death. Any Taxpayer funds given to the US Auto Industry will only encourage the continuation of the arrogant, stupid, and selfish bad business policies of both the US Auto Industry executives and the UAW members. Do not let these same highly paid incompetent executives and the overpaid union workers continue their featherbed deals, job banks, perks, private jet airplanes, stupid business decisions, and etc. with taxpayer money. These same people took so much money from the US Auto Industry that they bled the US Auto Industry to death. Let them go bankrupt so other parties can buy their assembly plants and re-start these plants as non-union automobile manufacturing operations.
Why can’t we continue to just crank up the presses and print more dollars, T-Bills, Government Bonds, etc. to pay foreigners in other countries with our money to manufacture or supply the auto parts and other things that we imported and consumed, rather than working to make these products ourselves in this country?
Since the US government stopped redeeming US dollars for gold, foreign governments and foreign individuals continue to take our dollars (and other US securities that they earned for the things that they made for us to consume) and are purchasing the real estate, industries, breweries, hotels, factories, casinos, financial institutions, and everything else of value that is located in the USA. There is probably a limit to the amount of paper dollars that the foreign manufacturing people and the foreign country raw material supplying people will continue to accept in payment. That limit will become apparent as soon as foreigners own everything of value in the USA and nothing is left to sell.
It is not the foreigner’s fault that this condition exists. We created this condition ourselves. We intentionally destroyed most of our industries that were located in the US and fired all of the employees because they created pollution. Why should we make the things that we consume as long we can get people in other countries to work to make these things for our consumption? We can pay them with freshly printed-paper currencies and other types of freshly printed-paper securities. They can redeem these freshly printed-paper currencies by exchanging them for title to our real estate, hotels, casinos, and our remaining businesses (instead of Gold). Our Stupid Legislators, EPA, Ignorant Government Employees, Bad Corporate Managers, Greedy Unions, Wall Street Financial Geniuses, Enron type Master Criminals, NAFTA, and OSHA, just to name a few, have created this situation.
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[...] Detroit Big Three automakers received early holiday cheer as the U.S. Treasury Department will release $17.4 billion of Troubled Asset Relief Program (TARP) mone…. General Motors Corp. (GM) and Chrysler LLC will be the recipients, while Ford Motor Co. (F) [...]
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[...] Detroit Big Three automakers received early holiday cheer as the U.S. Treasury Department will release $17.4 billion of Troubled Asset Relief Program (TARP) mone…. General Motors Corp. (GM) and Chrysler LLC will be the recipients, while Ford Motor Co. (F) [...]