President Bush today announced that Detroit would gain access to some of the TARP fund.  He is allocating $9.4 billion to GM and $4 billion to Chrysler.  The White House expects officials from GM and Chrysler to sign the papers this morning so they can gain access to the cash later today.

The loan terms are for three years, but if GM or Chrysler fails to present a viable plan by March 31 they’ll have to pay the loans back in full.  Just one of the conditions of the loan.  The automakers are going to have to renegotiate their union contracts and the contracts with any debt they owe.

On many occasions President Bush has said that he disagrees with a bailout, and that in times of good economic growth he wouldn’t approve any kind of bailout.  But during a recession it would be a mistake to let an employer of so many workers fail.

“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.

There were rumors that Bush would only approve a bailout that consisted of a chapter 11 for GM/Chrysler.  The government would provide the two with debter in posession loans to go along with a structured bankruptcy filing.  It is unlikey that GM nor Chrysler would agree to such a deal and would try to raise cash to operate until President Elect Obama took office.

Terms and Conditions

The  terms of this loan are very similar to the bailout that failed to pass in the senate.  The executives at GM and Chrysler must agree to limit compensation (Chrysler’s Nardelli already makes $1 per year) and give up perks like corporate jets.  Both must also issue warrants, which convert into non-voting stock, to the government.

The automakers must also prove that they can be viable by March 31 and will have to submit plans by February 17.  The White House is suggesting that the automakers reduce their debt load by 2/3 and renegotiate their union contracts to be on par with the foreign automakers (who have no unions to deal with)  that they compete with.