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.

With lawmakers drawing closer to a loan deal to save Chrysler and General Motors, Chrysler CEO Bob Nardelli told workers this morning that he is “very encouraged by developments over the weekend.”

“While the situation in Washington remains dynamic, I am very encouraged by the developments over the weekend and the growing interest shown by Congress and the administration to provide needed financial assistance to the three Detroit automakers,” he said in a memo to employees obtained by the Free Press.

He cautioned that “this process is far from over.”

Chrysler has asked for $7 billion by the end of the month and has warned that without immediate help its liquidity could fall below the level necessary to sustain the company through the first three months of 2009.

Source: Freep

Loans for automakers and parts suppliers from a $25-billion pool expected to pass Congress this week might not reach the industry for six to 18 months, the U.S. Department of Energy said Thursday.

Detroit automakers are facing a cash crunch that is expected to last through 2010, and lawmakers added requirements to the loan program this week to speed the process of handing out funds.

Under the bill, the DOE must write the rules for the loans within 60 days of the bill becoming law. But DOE spokeswoman Healy Baumgardner said Thursday that the agency had “significant doubts about whether distribution of loans by January 2009 is realistic.”

“Because there are a number of legal and administrative requirements with which the department must comply, such as the National Environmental Policy Act, we anticipate it could take at least six to 18 months or more” before loans are granted.

Rep. John Dingell, a Dearborn Democrat, said in a statement that the agency was “making excuses for its own anticipated failures,” adding that “I hope this statement is not a sign of continued indifference to the U.S. auto industry on the part of the Bush administration in its waning days.”

Wall Street firms have estimated that the loans could sharply reduce the cash needs of General Motors Corp. in 2009, and at Chrysler LLC to a lesser degree, while also helping dozens of suppliers.

Source: DetroitFreePress

Looks like someone has a vested interest in the Detroit automakers demise, or at the very least slowing down their ability to change over their line up to meet the new market needs.