White House Approves $17.4 Billion Auto Loans to GM & Chrysler
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 three-year loans 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."
The White House and Treasury Department signaled a week ago that they were willing to use cash from the bank bailout fund to help keep GM and Chrysler afloat after the Senate failed to vote for a $14 billion bailout for the two companies. The bill had already passed the House and had the support of the administration.
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.
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.
Breaking News...Bush announces help for Big 3
He will provide 13.4 billion from TARP and another 4 billion (in Feb.) in LOANS
He said bankruptcy is not an option "at this time"...due to the many reasons that were discussed here...
Admitted these are extraordinary times that require such action to avoid collapse that would be disaster for all Americans
Viable plan by March 31, reforms, etc. or money must be paid back immediately and if the only option is banckruptcy then so be it
Whew...Thank goodness! All that was needed was a fighting chance...I am confident GM can do it :D
Thank God!!!! Best thing that could have happened. My Dad and other retirees can breath a little easier.
Bring on our CAMAROs!!!!!!!!!!!!:thumbup::thumbup::happyanim:
*wipes sweat off brow*
Here's the rub as I see it:
"The government will put other conditions on the loans, Bush said Friday, including making pay competitive with foreign automakers with large U.S. operations such as Toyota and Honda."
I thought the UAW said they were done making concessions since they already have plans to get to these levels in 2010.
If they don't agree to make speed up the time table for the cuts, what happens???
Com'om GM get it done. I know with the new lineup coming out, you can do it!
Bush: Automakers to get 17.4 Billion$
Here is a link:
:happyanim: Let's start partying likes is 1999 :happyanim::drinking::drinking:
Great news to hear, but I hope people will start to buy some GM cars!
Another source (link). FINALLY!!! Some good news. Merry frikin' Christmas :D
"President George W. Bush will doubtlessly be remembered for many things things, but his parting legacy may yet be his eleventh-hour pledge of $17.4 billion in low-interest loans to General Motors and Chrysler (Ford Motor Company has said it does not require relief at this time).
The funding will reportedly come from the Troubled Asset Relief Program (TARP), the financial industry bailout package signed off on this fall. Up front, the White House will earmark $17.4 billion in short-term financing for December and January, and in February, another $4 billion will be disbursed, provided it can draw the funds from the second half of TARP's $700 billion.
More details are doubtlessly coming, but the bridge loans appear to hinge largely on whether General Motors and Chrysler are deemed "viable" enterprises by the government. In the terms of the agreement, that means that the automakers must prove whether they have a "positive net present value, taking into account all current and future costs, and can fully repay the government loan." There's no word yet on how they will prove said viability, but we expect to learn more soon. In the meantime, expect for both General Motors and Chrysler to stick to their previous production suspension announcements.
Politico has more specifics on the bailout here.
UPDATE: Press releases from General Motors, Ford and Chrysler have been added after the jump.
[Sources: ABC NEWS, Politico, Photo by Brendan Hoffman/Getty]
GM Statement on Administration Providing Bridge Loan to Domestic Auto Industry
We appreciate the President extending a financial bridge at this most critical time for the U.S. auto industry and our nation's economy. This action helps to preserve many jobs, and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us.
This will allow us to accelerate the completion of our aggressive restructuring plan for long-term, sustainable success. It will lead to a leaner, stronger General Motors, a GM that is:
*dedicated to great products, exciting design, and world-class quality
*fully committed to leading in energy-saving vehicles and technologies,
*responsive to the needs of our customers, our stakeholders and the communities we live in and serve.
We know we have much work in front of us to accomplish our plan. It is our intention to continue to be transparent as we execute our plan, and we will provide regular updates on our progress. We again 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.
# # #
FORD MOTOR COMPANY WELCOMES ACTION TO PROVIDE EMERGENCY FUNDING TO GM AND CHRYSLER
DEARBORN, Mich., Dec. 19, 2008 – Ford Motor Company said today that it welcomes action by the Administration to provide emergency funding for General Motors Corp. and Chrysler LLC.
"As we told Congress, Ford is in a different position. We do not face a near-term liquidity issue, and we are not seeking short-term financial assistance from the government," Ford President and CEO Alan Mulally said. "But all of us at Ford appreciate the prudent step the Administration has taken to address the near-term liquidity issues of GM and Chrysler. 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."
Ford recently submitted to Congress its comprehensive business plan, which details the company's plan to return to pre-tax Automotive profitability by 2011. In the plan, Ford said the transformation of its North American automotive business will continue to accelerate through aggressive restructuring actions and the introduction of more high-quality, safe and fuel-efficient vehicles – including a broader range of hybrid-electric vehicles and the introduction of advanced plug-in hybrids and full electric vehicles.
"Ford has a comprehensive transformation plan that will ensure our future viability – as evidenced by our profitability in the first quarter of 2008," Mulally said. "While we clearly still have much more work to do, I am more convinced than ever that we have the right plan that will create a viable Ford going forward and position us for profitable growth."
Ford is asking for access to a line of credit of up to $9 billion in bridge financing, but reiterated that it hopes to complete its transformation without accessing a government loan.
"For Ford, a line of credit would serve only as a critical backstop or safeguard against worsening conditions, as we drive transformational change in our company," Mulally said.
Ford reiterated that it is continuing aggressive actions to reduce costs and improve Automotive gross cash to fund its product-led transformation plan, despite the continued weakness in the global automotive market and economic environment. Ford said it is more committed than ever to deliver more of the safe, affordable, high-quality, fuel-efficient vehicles that consumers want and value. The company's plans include:
* Delivering best-in-class or among the best fuel economy with every new vehicle introduced.
* Investing approximately $14 billion in the U.S. on advanced technologies and products to improve fuel efficiency during the next seven years.
* Introducing industry-leading, fuel-saving EcoBoost engines on today's vehicles for up to 20 percent better fuel economy and up to 15 percent fewer CO2 emissions versus larger-displacement engines.
* Bringing to market by 2012 a family of hybrids, plug-in hybrids and battery electric vehicles.
* Upgrading the Ford, Lincoln, Mercury lineup in North America almost completely by the end of 2010.
* Bringing six European small vehicles from global B-car and C-car platforms to be built in Ford's North America plants.
* Retooling three North American truck plants to produce small, fuel efficient vehicles.
* Building on vehicle quality that is now on par with Honda and Toyota – and that consistently is being recognized by important third-parties like J.D. Power and Associates' Initial Quality Study – driven by Ford's disciplined and standardized processes for every product.
* Building on vehicle safety leadership – with the most U.S. government 5-star safety ratings of any auto company and recently moving past Honda for the industry's most IIHS "Top Safety Picks" – plus new smart safety features, such as the industry-first MyKey technology that limits top speed and audio volume for teens and the first forward crash-avoidance system for mainstream vehicles.
* Supporting Ford's products with a lean, flexible global manufacturing system on par with leading Japanese and European facilities.
To read Ford's submission to the U.S. Congress and for more information about Ford's plan, please visit www.thefordstory.com.
# # #
Chrysler LLC Thanks the Administration and Treasury for Their Confidence
Auburn Hills, Mich., Dec 19, 2008 - Chrysler LLC Chairman and CEO Bob Nardelli said on behalf of the men and women of Chrysler and its extended enterprise, that he would like to thank the Administration and Treasury for their confidence in the Company.
"A letter of intent was signed which outlines the specific requirements that must be achieved," said Nardelli. "These requirements will require consideration from all constituents, requiring commitment first in principal, leading to implementation this coming year. Chrysler is committed to meeting these requirements."
# # #
Nardelli said the Company would remain focused on its challenge and this initial injection of working capital would help bridge the liquidity crisis the industry is facing and assist in helping return Chrysler to profitability."
:rolleyes: Why is it that Ford's statement was the longest, and they're not even wanting the money? :laugh:
They must also have the cost structure in line with foreign competitors by the end of CY 2009.
So, the UAW basically has untill the end of next year to implement (not just pass, but must be fully implemented) more concessions or the companies forefit their loans.
Gettlefinger has to take it now. No more discussions and negotiations.
Thank you executive oRDer
Thank you executive oRDer, Its nice being the Prez!!!!!!!!!!!!
Merry Christmas! : )
This is really good news, finally some relief.
took em long enough.
The ball is in your court, UAW....don't screw this up.
Thank You Bush!
A big thank you to Bush for helping GM. There is definately more comfort now.
I just received this from my Congressman...I am on his list from the variety of letters I sent...Talk about a fast response! A good summary of the deal...
As you know, Congress recently failed to pass important bridge loans for Michigan's auto industry. In response to Congress' shortcomings, I have been working with President Bush to use part of the Wall Street bailout funding to assist the Big 3.
I am very pleased to share with you the news that this morning President Bush announced a $17 billion bridge loan program for Michigan's automakers. I am confident that this assistance will prevent disaster for Michigan's economy and Michigan workers. I am also confident that these bridge loans will give Michigan the helping hand we need to rebuild and renew for our future.
However, we must recognize that these bridge loans alone will not solve Michigan's problems. I am encouraged that President Obama has said he wants to help Michigan and our auto industry. I look forward to working with him to do everything possible to help the Big 3 get back on their feet again. As your Congressman, I will always continue to work create sensible energy, tax, and health care policies that created jobs and promote economic growth in Michigan.
Again, thank you for allowing me the opportunity to share my thoughts with you.
FACT SHEET ON AUTO LOAN PROGRAM
Amount: Auto manufacturers will be provided with $13.4 B in short-term financing from the TARP, with an additional $4 B available in February, contingent upon drawing down the second tranche of TARP funds.
Viability Requirement: The firms must use these funds to become financially viable. Taxpayers will not be asked to provide financing for firms that do not become viable. If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.
Definition of Viability: A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.
Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:
· Firms must provide warrants for non-voting stock.
· Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
· Debt owed to the government would be senior to other debts, to the extent permitted by law.
· Firms must allow the government to examine their books and records.
· Firms must report and the government has the power to block any large transactions (>$100 M).
· Firms must comply with applicable Federal fuel efficiency and emissions requirements.
· Firms must not issue new dividends while they owe government debt.
The terms and conditions established by the Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:
· Reduce debts by 2/3 via a debt for equity exchange.
· Make one-half of VEBA payments in the form of stock.
· Eliminate the jobs bank.
· Work rules that are competitive with transplant auto manufacturers by 12/31/09.
· Wages that are competitive with those of transplant auto manufactures by 12/31/09.
These specific terms and conditions are non-binding, but firms that accept these loans must report why they have deviated from these terms and conditions and make the business case to achieve long-term viability in spite of the deviations.
In additions, the firm will be required to conclude new agreements with its other major stakeholders, including dealers suppliers, by March 31, 2009.
Member of Congress
At least he did something remotely viable for a change.
He has my vote now!
4 more years! 4 more years! Wait, is this considered POLITICAL talk?
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