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Automakers to get 13.4 billion
Topic Started: Dec 19 2008, 05:07 PM (800 Views)
Heather
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GM and Chrysler Will Get $13.4 Billion in U.S. Loans

By Roger Runningen and John Hughes

Dec. 19 (Bloomberg) -- General Motors Corp. and Chrysler LLC will get $13.4 billion in emergency government loans in exchange for substantially restructuring their businesses, President George W. Bush announced.

Another $4 billion will be available to GM in February provided Congress releases the second half of the $700 billion Troubled Asset Relief Program fund originally set up to bail out financial institutions. The automakers have until March 31 to meet the conditions of the loans, including demonstrating they have a plan to become profitable, or be forced to repay.

Winning the assistance is a reprieve for GM, the biggest U.S. automaker, and No. 3 Chrysler after they said they would run out of operating funds as soon as this month. Bush is stepping in after Senate Republicans’ refusal last week to take up a House- approved rescue raised the prospect that the companies would fail, costing millions of jobs.

“These are not ordinary circumstances,” Bush said at the White House today. “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.”

The cost of letting automakers fail would lead to a 1 percent reduction in the growth of the U.S. economy and mean about 1.1 million workers would lose their jobs, including those in the auto supply business and among dealers, the White House said in a fact sheet.

‘Necessary Step’

President-elect Barack Obama endorsed the plan, calling it in a statement a “necessary step” to avoid a major blow to the economy.

“I do want to emphasize to the Big Three automakers and their executives that the American people’s patience is running out,” Obama said later at a news conference. “They’re going to have to make some hard choices.”

The United Auto Workers are “disappointed” that Bush added “unfair conditions singling out workers,” the union’s president, Ronald Gettelfinger, said in a statement.

“We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed,” Gettelfinger said.

GM is reeling from almost $73 billion in losses since 2004 and a 22 percent slump in U.S. sales this year, while the drop at Auburn Hills, Michigan-based Chrysler is 28 percent, the steepest among the major automakers.

The package is intended for GM and Chrysler initially. Ford Motor Co., the second-biggest U.S. automaker, has said it can continue operating without aid for now.

Loan Term

The loan term is three years. GM would get $4 billion by Dec. 29 and $5.4 billion by Jan. 16. Chrysler would get $4 billion by Dec. 29. GM would get another $4 billion by Feb. 17, provided Congress releases the TARP funds.

Under the terms of the plan, the government’s debt would have priority over any other creditors. The automakers also must provide warrants for non-voting stock, accept limits on executive pay, and give the government access to financial records.

No dividends may be issued until the loans are repaid. In addition, the automakers must cut their debt by two-thirds in an equity exchange.

For workers, GM and Chrysler would be required to make half of the payments to a union retirement fund in equity and eliminate a program that pays union workers when they don’t have work. Unions and management would have to negotiate a plan to have compensation and work rules in place by Dec. 31, 2009, that will make the U.S. companies competitive with foreign automakers. The requirements could be modified by negotiations with the union and debt holders.

5 Percent

GM and Chrysler will pay at least 5 percent on the loans, and would pay 3 percentage points over the London interbank offered rate should Libor exceed 2 percent.

The average cost of loans to high-risk, high-yield companies in dollars is a premium of 10.5 percentage points more than Libor, according to Standard & Poor’s Leveraged Commentary and Data unit.

GM shares rose 83 cents, or 22.7 percent, to close at $4.49 in New York Stock Exchange composite trading. Ford rose 11 cents, or 3.9 percent, to $2.95. Before today, the companies’ shares had tumbled 85 percent and 58 percent this year.

Cerberus Capital Management LP, the New York-based buyout firm that owns Chrysler, said today it will hand over equity in the company’s automotive operations to labor and creditors as part of the loan agreement. “Concessions by all relevant constituencies” are needed to restructure Chrysler, Cerberus said in an e-mailed statement.

Plan Criticisms

The plan “unfortunately singles out workers and clearly puts them at a disadvantage before negotiations have even begun,” House Speaker Nancy Pelosi, a California Democrat, said in a statement.

Republican Senator John McCain of Arizona, his party’s presidential nominee this year, said he regretted that the president decided to “give away” $17 billion to the automakers “while failing to receive any serious concessions from the industry.”

Senator Bob Corker, a Tennessee Republican, said the agreement is “open to interpretation” and that he hopes the Obama administration “has the will to enforce tough concessions.” He added in a statement, “The best solution would have been definite terms.”

The conditions are largely those set out in the legislation passed by the House and blocked in the Senate.

Foreign Companies

Representative Barney Frank, a Massachusetts Democrat who helped craft the House plan, said in an interview that “it’s outrageous to be giving foreign companies the right to set wages for American workers.”

The plan otherwise was mostly what was negotiated in the House, Frank said.

Democratic Senator Carl Levin of Michigan said the plan “gives the industry breathing room.” In a conference call with reporters, he said Bush was wise to set the automakers’ restructuring targets “as non-binding goals which are subject to negotiations.”

“We’ve got a huge amount of work to do over the next 90 days and beyond,” GM Chief Executive Officer Rick Wagoner said at a Detroit news conference.

“Chrysler is committed to meeting these requirements,” the company’s chief executive officer, Bob Nardelli, said in a statement.

The government rejected letting the companies go bankrupt, as had been urged by some lawmakers opposed to a bailout.

‘Weak Job Market’

Bankruptcy would “worsen a weak job market and exacerbate the financial crisis,” Bush said. “It could send our suffering economy into a deeper and longer recession.”

The terms of the loans represent a major challenge for the automakers, Maryann Keller, an independent auto analyst and consultant in Greenwich, Connecticut, said in a Bloomberg Television interview.

“The restructuring they’re going to have to go through will be huge,” Keller said. “I can’t see a way for GM to operate properly with the capital structure they have.”

Joel Kaplan, Bush’s deputy chief of staff, said representatives of Obama, who takes office Jan. 20, have been kept informed of the administration’s actions.

The Treasury secretary would in effect be a “car czar,” making sure the automakers meet deadlines and having the authority to revoke the loans, Kaplan said. The Bush administration didn’t want to designate an independent overseer with a month left in office.

Kaplan, asked whether Chrysler should merge with GM, sidestepped the question.

“We are not going to tell the manufacturers what the right structure is for them to be viable; we’re just going to tell them that if you want taxpayers’ assistance, you’re going to have to make those decisions, and you’re going to have to prove it,” he said.

Treasury will need to go to Congress to get the remaining $350 billion in TARP funds released, including the $4 billion in additional loans to the automakers, Kaplan said. That may be left for Obama’s administration, he said.


http://www.bloomberg.com/apps/news?pid=206...KkVQ&refer=home
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Hedo
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cool mofo
Ford ?
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Almighty
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Give that Roo a beer

If you don't all want to end up driving bland Toyota and Honda same old pieces of crap with no character at all then by all means bail them out.

But...

they need to start making good cars again and listening to what the market wants

People want good reliable cars , but some of them also want to buy something that has a little more character than a moving fridge

Toyota treats cars like whitegoods :sarcastic:
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GCE-1701-D
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aka GalaxyClassUSSEnterpriseNCC1701D But my friends call me Darren
here's a novel idea, MAKE CARS PEOPLE ACTUALLY WANT TO OWN that are reliable, and that look good, and that have decent cabin tech and a good set of standard features, THEN people will buy your cars, and you wont need to be bailed out, so you can then just keep making cars people obviously don't want or you wouldn't need to bailed out in the first place :sarcastic:
we want the old Kai! "bring sexy back, vote Classic Kai"

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:whistle:
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Hedo
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cool mofo
GCE-1701-D
Dec 19 2008, 11:21 PM
here's a novel idea, MAKE CARS PEOPLE ACTUALLY WANT TO OWN that are reliable, and that look good, and that have decent cabin tech and a good set of standard features, THEN people will buy your cars, and you wont need to be bailed out, so you can then just keep making cars people obviously don't want or you wouldn't need to bailed out in the first place :sarcastic:

Stop being logical
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GCE-1701-D
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aka GalaxyClassUSSEnterpriseNCC1701D But my friends call me Darren
Hedo
Dec 19 2008, 04:22 PM
GCE-1701-D
Dec 19 2008, 11:21 PM
here's a novel idea, MAKE CARS PEOPLE ACTUALLY WANT TO OWN that are reliable, and that look good, and that have decent cabin tech and a good set of standard features, THEN people will buy your cars, and you wont need to be bailed out, so you can then just keep making cars people obviously don't want or you wouldn't need to bailed out in the first place :sarcastic:

Stop being logical

only if you stop being Hedo :p
we want the old Kai! "bring sexy back, vote Classic Kai"

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Almighty
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Give that Roo a beer

GCE-1701-D
Dec 20 2008, 10:21 AM
here's a novel idea, MAKE CARS PEOPLE ACTUALLY WANT TO OWN that are reliable, and that look good, and that have decent cabin tech and a good set of standard features, THEN people will buy your cars, and you wont need to be bailed out, so you can then just keep making cars people obviously don't want or you wouldn't need to bailed out in the first place :sarcastic:

THey were making what the market wanted , then it changed and they were too slow to react

That is the truth wether we like it or not
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Hedo
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cool mofo
GCE-1701-D
Dec 19 2008, 11:23 PM
Hedo
Dec 19 2008, 04:22 PM
GCE-1701-D
Dec 19 2008, 11:21 PM
here's a novel idea, MAKE CARS PEOPLE ACTUALLY WANT TO OWN that are reliable, and that look good, and that have decent cabin tech and a good set of standard features, THEN people will buy your cars, and you wont need to be bailed out, so you can then just keep making cars people obviously don't want or you wouldn't need to bailed out in the first place :sarcastic:

Stop being logical

only if you stop being Hedo :p

Impossible.
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Moon
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How's Your Gapping Pu$$y, Kai?
Movie Era Rear Admiral
GCE-1701-D
Dec 19 2008, 05:21 PM
here's a novel idea, MAKE CARS PEOPLE ACTUALLY WANT TO OWN that are reliable, and that look good, and that have decent cabin tech and a good set of standard features, THEN people will buy your cars, and you wont need to be bailed out, so you can then just keep making cars people obviously don't want or you wouldn't need to bailed out in the first place :sarcastic:

Actually, I know that there have been more recalls on foreign cars than American mades in the last 3 years, but you never hear about that.

I find it really amazing that people are up in arms over this situation and no one is going on about those f'n finance people who got everything with no conditions and they continue to use money like it's facial tissue.

You're talking about millions of people out of work if these business' fail, and it'll be domino affects in many other ways too.

The auto industry supports more middle class people in this country than any other industry, and I'm just amazed that it appears no one f'n cares about their fellow country men.

American made cars have gotten a bad rap over the years, but I know one automaker in particular has been working their asses off, mostly because I have a sibling who is in the autoindustry working on new car development and I hear about it when we all see one another at the lake in the summer.

It's wasted energy being mad at the auto industry, you should be furious at the government regulators for not protecting the financial aspect of this country, you should be furious at the greed of the people who are already rich enough, and you should be pissed for all the seniors who lost tens of thousands of dollars through all of this.

Get real people.

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Hedo
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cool mofo
The rice carts will get recalls for even minor things. While the beef wagons will not to save money
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