GM and Chrysler Will Get $13.4 Billion in U.S. Loans

President Bush announced that GM and Chrysler will receive $13.4 billion in government loans to keep them afloat until March.

President Bush announced that GM and Chrysler will receive $13.4 billion in government loans to keep them afloat until March.  The money will come from the TARP, the $700 billion Treasury program initally conceived to buy bad assets from banks.  In return for giving the money, the goverment becomes a preferred creditor, becoming first in line to be compensated should either company fail.  The goverment also receives warrants for non-voting stock.

Both companies have agreed to executive compensation limits and the union must agree to renegotiate its wage structure. 

If the restructuring fails or the government is not satisfied with the pace of changes, it can call the money in March.

Reasonable Plan

This seems like a reasonable plan for all involved.  The car companies have a few more months to decide how to restucture their companies.  Both management and the union are put on notice that Chapter 11 is the next step if they can't work together to make their business viable.  At the same time, Bush has created a bridge so that the Obama administration has some time to decide what it wants to do.

I don't like the fact that TARP money is being used to provide the funds although part of me believes that the money will do more good going to the automakers than the banks, which seem to be black holes of ineptness and bottomless greed (see Merrill Lynch CEO asking for $10,000,000 bonus).

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • thedorightman

    January 06, 2009

    This is a no-brainer. Chrysler {the biggest loser} should cut the MSRP in half on all inventory right now.
    The fact of the matter is that the vehicles are worth only half of MSRP once they get 7-10k miles on them anyway.
    But what they will do is steal the money and then leave their post for some other juicy pickings. The car companies and the tax paying public are doomed.

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