Chrysler LLC’s chief says the automaker has received an initial $4 billion loan from the U.S. Treasury Department.

Chief Executive Bob Nardelli said Friday night in a release that the Auburn Hills, Mich.-based company’s talks with the federal government about the bridge loan have been completed.

Nardelli says the initial loan will allow Chrysler to continue its restructuring and pursue “our vision to build the fuel-efficient, high-quality cars and trucks people want to buy, will enjoy driving and will want to buy again.”

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.

Last week the senate denied the automakers a $14 billion emergency loan (it was actually coming out of the $25 billion loan that is already promised to them, but not being released) saying that the UAW is to blame because the UAW woudn’t make more concessions.  The stock market and the value of the dollar seem to be going up and down with the news as it comes out.  Bailout likely, stocks/dollar up - bailout fails, stocks/dollar down.  While the majority of people polled are against the auto bailout it would seem that our financial markets support it.

Originally the automakers wanted access to TARP, the $700 billion nest egg that congress set aside for banks if they wanted some of it.  TARP would’ve been easier if it were approved by the treasury a month ago.  Back then the treasury balked at the idea saying that TARP was only for financial institutions.

So congress went into action, held two sessions with the CEOs of Ford, Chrysler, and GM, and after many iterations finally had a plan that most of them agreed on.  They talked with the White House and made sure that the executive branch approved of the deal (really, the executive branch got what it wanted - they wanted the money to come out of the $25 billion loan that was already approved).  Then it breaks down in the senate.

What’s the President to do?  He already had the deal he wanted, then congress said no.  So now it looks like the treasury is going to reverse it’s stance on using TARP to help Detroit.  Why would the president do this?  I think it’s partially because there are no other options, but I also think it’s because he wants to remind congress who’s in charge.  Congress put all kinds of rules in place for TARP and the executive branch is basically ignoring them to help the ailing auto industry.