Automakers Get $17.4 Billion Federal Loan
|
|
The Detroit Three
|
|
Additional Resources:
|
The White House announced a $17.4 billion dollar loan for domestic automakers on Friday, saving General Motors and Chrysler from a looming Chapter 11 bankruptcy filing.
Speaking from the White House, President Bush said that protecting the health of the economy was as much a government responsibility as upholding the free market system.
| The loan package closely follows the design of the compromise bill that was defeated last week in the Senate, with a deadline of March 31 for the automakers to demonstrate viability.
|
"Under ordinary economic circumstances, I would say [bankruptcy] is the price that failed companies must pay," said Bush. "And I would not favor intervening to prevent the automakers from going out of business. But these are not ordinary circumstances."
The loan package closely follows the design of the compromise bill that was defeated last week in the Senate, with a deadline of March 31 for the automakers to demonstrate viability. The plan also limits executive compensation, enforces pay scales competitive with foreign manufacturers and opens financial records for government review.
"The time to make hard decisions to become viable is now, or the only option will be bankruptcy," Bush said. "The automakers and unions must understand what is at stake and make hard decisions necessary to reform."
$13.4 billion dollars will be available to General Motors and Chrysler within the next few weeks, while an additional $4 billion could be available in February. The funding will be drawn from the $700 billion dollar Troubled Asset Relief Program (TARP) passed by Congress earlier this year.
Ford has said it doesn't require short-term funding.
"These loans will provide help in two ways," said Bush. "First, they will give automakers three months to put in place plans to restructure into viable companies - which we believe they are capable of doing. Second, if restructuring cannot be accomplished outside of bankruptcy, the loans will provide time for companies to make the legal and financial preparations necessary for an orderly Chapter 11 process that offers a better prospect of long-term success - and gives consumers confidence that they can continue to buy American cars."
Critics of a bridge loan have suggested the automakers should restructure under Chapter 11 bankruptcy protection. Automakers argued that Chapter 11 would make the situation worse because buyers would be unlikely to make a long-term investment from a company in bankruptcy.
"We appreciate the President extending a financial bridge at this most critical time for the U.S. auto industry and our nation's economy," said a General Motors statement regarding the loan. "This action helps to preserve many jobs, and supports the continued operation of GM and the many suppliers, dealers and small businesses across the country that depend on us."
Chrysler CEO Robert Nardelli expressed thanks to the Bush Administration for their confidence in the company.
"A letter of intent was signed which outlines the specific requirements that must be achieved," said Nardelli in a statement. "These requirements will require consideration from all constituents, requiring commitment first in principal, leading to implementation this coming year. Chrysler is committed to meeting these requirements."
The cash will be a welcome infusion for the struggling companies, both of which were already flirting with bankruptcy proceedings. Chrysler recently announced extended holiday shutdowns for all its manufacturing operations, while GM has significantly cut back on advertising and first quarter production forecasts.
"By giving the auto companies a chance to restructure, we will shield the American people from a harsh economic blow at a vulnerable time," said President Bush.'
by Christopher Smith, Autotropolis
| 
