The money will come from the $700 billion fund set aside to bailout Wall Street firms and banks in October.

GM will get $9.4 billion from the first allocation of federal loan money, while Chrysler would get the other $4 billion.

The loans are for three years but the money will have to be repaid in full within 30 days 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.

“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.

Conditions similar to auto bailout bill

The terms of the loan are similar to those set in the auto bailout legislation that was passed by the House last week but was shot down in the Senate. Executives at GM and Chrysler must agree to limits on their compensation and eliminate perks such as corporate jets. The companies also must issue warrants, which convert into non-voting stock, to the government.

The loans do not include the concept of a so-called “car czar” to oversee the automakers, although it does say that a designee of the President would determine if the automakers are making the changes necessary for them to be considered viable.

The Bush administration official said that Treasury Secretary Henry Paulson would fill that role in the remaining days of the current administration.

The loans call for the automakers to prove they are viable by March 31, even though they are not expected to be profitable by that date. They must submit the details of the plans by Feb. 17.

Source: CNNMoney

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.

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.

Dear Employees:

We are all obviously disappointed in what transpired in the Senate last night. While a majority of Senate members supported the bridge loan request (52 in total, including 10 Republicans), the required 60 votes necessary were not achieved. While concessions from all key constituents were a condition of the loan, attempts to negotiate specific industry cost concessions during Senate consideration failed, leading to the breakdown.

Despite this setback, we will continue to make our case in Washington that an immediate, short-term bridge loan is critical for Chrysler to survive the current financial crisis and is just as important to the health of the overall American economy. We also will continue our discussions with the White House and with the Treasury Department, and will continue to seek funding options for Chrysler and Chrysler Financial through existing programs including the Troubled Assets Relief Program (TARP).

To that end, we were pleased to see the commitment from the White House in the following statement released today:

“It is disappointing that while appropriate and effective legislation to assist and restructure troubled automakers received majority support in both houses, Congress nevertheless failed to pass final legislation. The approach in that legislation provided an opportunity to use funds already appropriated for automakers, and presented the best chance to avoid a disorderly bankruptcy while ensuring taxpayer funds go only to firms whose stakeholders were prepared to make the difficult decisions to become viable, competitive firms in the future.

Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms. However, given the current weakened state of the U.S. economy, we will consider other options if necessary – including use of the TARP program — to prevent a collapse of troubled automakers. A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time.

While the federal government may need to step in to prevent an immediate failure, the auto companies, their labor unions, and all other stakeholders must be prepared to make the meaningful concessions necessary to become viable.”

I also want you to know that we are in on-going discussions with the presidential transition team, and key members of the incoming administration are aware of the importance of addressing the short-term and long-term viability of our industry and our company.

All of us can help with these efforts. First and foremost, we must eliminate every unnecessary cost in every aspect of our business. While a bridge loan is critical to manage through this financial crisis, we must continue to manage the factors under our control. Continued cost reduction is important to ensure the future viability of the company. At the same time, let’s not forget that we have a solid plan for recovery and viability, great products in our pipeline and the most dedicated people in the business. Let’s all maintain our commitment to each other to work toward a great future for our Company.

I also would encourage every U.S. employee to take a minute today and call the White House comment line at (202) 456-1111, or send a note to the White House at comments@whitehouse.gov. Voice your support for immediate action to assist Chrysler and the millions of Americans who depend on the automotive industry. Urgent action is needed to prevent the failure of this important industry that provides $293 billion in annual economic benefit to this country. Please tell your friends and family to do the same. Together, we will make our voices heard.

Thank you for your continued support.

Bob

Source: Allpar

Lutz’s comments on the news channel this morning were in response to congressional leaders’ weekend calls for management changes at GM as a condition of any federal aid package.

Sen. Chris Dodd, D-Conn., in particular said that Wagoner should resign.

“All I know is that there’s going to be sacrifice required from all parties,” Lutz told CNBC. “All stakeholders are going to have to give something. Otherwise, this isn’t going to work.”

Source: Freep

“The first $4 billion is crucial,” GM’s Chief Operating Officer Fritz Henderson said. “There is no Plan B.”

The loan would be part of $18 billion in federal aid being requested by the company. GM said it needs another $8 billion by March, and a $6 billion credit line that would be available until 2012 in case U.S. auto sales drop beyond its expectations.

The stark admission that GM could fail came as the company presented a turnaround plan that had been demanded by lawmakers as a condition of reopening the debate about financial assistance for Detroit automakers GM, Ford and Chrysler.

In exchange for government funding, GM said it would undertake a sweeping restructuring, pushing its major union, dealers and creditors to accept the kinds of cost-saving contract changes that companies typically seek in bankruptcy.

GM, which has cut costs for nearly four years as U.S. sales declined, said it was prepared to cut jobs, dealers and brands. It said it would try to sell Saab, phase out its mass-market Pontiac brand and talk to Saturn dealers about discontinuing that brand.

With Hummer already being shopped, that would leave GM with the more profitable Chevrolet, Cadillac, Buick and GMC brands, and a more focused strategy.

GM said it would look to reduce its debt by almost $36 billion by asking bond holders to swap out of existing debt, and that it would negotiate new terms for its planned $21 billion contribution to a health care trust fund run by the United Auto Workers union. In so doing, GM plans to cut its debt to $30 billion, Henderson said.

“The plan is intended to accomplish what would otherwise be achieved by a bankruptcy filing,” he told reporters. “It is not our plan to resort to the bankruptcy court.”

Source: Reuters

Scary times call for drastic measures.  I’m not too worried about the Volt, even if GM goes under the Volt is far enough along that someone (Tesla?) would buy up the asset in Ch. 7.  Cars like this are going to be made with or without GM doing the making (I would prefer it be GM though).

GM was not immediately available for comment.

Federal lawmakers last week rejected pleas from GM, Ford Motor Co and Chrysler LLC for $25 billion of loans, and asked the automakers to submit detailed turnaround plans.

The lawmakers are scheduled to reconvene during week or December 8 to review any plans and consider aid. Some analysts have said GM’s remaining equity value could be essentially wiped out by any government recapitalization.

GM has said it might run short of operating cash by early 2009 if it doesn’t find help.

GM directors are scheduled to review a proposal November 30 and December 1, the Bloomberg article said, citing people familiar with the plans.

Source: Reuters

Pushed to the brink of failure by a plunge in auto sales, GM said on Friday it would idle five North American plants for more time to cut production and keep inventories.

The top U.S. automaker also said it would return two of its leased corporate jets amid intense criticism this week over GM executives’ deluxe arrangements for traveling to Washington to plead for a federal bailout.

GM is still leasing three corporate jets.

Congressional leaders agreed on Thursday to give Detroit automakers until next month to make their case for a rescue but demanded that GM, Chrysler LLC and Ford Motor Co show they have business plans that can keep them out of bankruptcy.

Source: Reuters