GM, Chrysler get bailouts

[J]

Bloomberg link

GM and Chrysler Will Get $13.4 Billion in U.S. Loans (Update3)
Email | Print | A A A

By Roger Runningen and John Hughes

Dec. 19 (Bloomberg) -- General Motors Corp. and Chrysler LLC will get $13.4 billion in initial government loans to keep operating in exchange for a restructuring under a rescue plan announced by President George W. Bush.

A bankruptcy is unlikely to work for the automakers at this time and can’t be allowed, Bush said at the White House.

“These are not ordinary circumstances,” Bush said. “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 money will be drawn from the Troubled Asset Relief Program and the automakers will get an additional $4 billion from the fund in February for a total of $17.4 billion in assistance, according to a statement from the Bush administration. The funds would allow GM and Chrysler to keep operating until March.

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 of a company failure costing millions of jobs.

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.

Deadline

Under the terms of the plan, if the companies can’t demonstrate financial viability by March 31 the loans will be called and the money must be returned, the statement said. The government’s debt would have priority over any other debts.

In exchange for the money, the automakers must provide warrants for non-voting stock, accept limits on executive pay, give the government access to financial records and not issue dividends until the debt is repaid. The government will have the authority to block transactions larger than $100 million.

The automakers much cut their debt by two thirds in an equity exchange, make half of the payments to a union retirement fund in equity, eliminate a program that pays union workers when they don’t have work and have union costs and rules competitive with foreign automakers by Dec. 31, 2009. The requirements could be modified by negotiations with the union and debt holders.

Books Examined

Government officials will examine all financial statements and records of the car companies.

The package is intended for GM and Chrysler initially; Ford Motor Co. has said it can continue operations under current circumstances.

GM soared 15 percent to $4.22 at 9:04 a.m. before regular New York Stock Exchange composite trading, while Ford gained 11 percent to $3.15.

GM’s 8.375 percent bonds due in July 2033 rose 3 cents to 18.6 cents on the dollar, yielding 45 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority.

Ford’s 7.45 percent bonds due in July 2031 gained 2 cents to 27 cents on the dollar, yielding 27.8 percent, Trace data showed.

The Bush administration agreed Dec. 12 to consider options, including use of the TARP, after Senate Republicans turned aside the House-backed plan. The Republicans sought more specific automaker conditions, such as pay in line with foreign manufacturers’ operations in the U.S.

United Auto Workers leaders agreed this month to suspend a program that pays laid-off employees after their jobs end, and to postpone automakers’ contributions to new union-run trusts that will take on responsibility for retirees’ medical care.

The dispute in Congress reflected the tension between Republicans from Southern states that have plants owned by Asian and European automakers, and the UAW, which primarily supports Democrats in political campaigns. The next Congress will have a bigger Democratic majority.

The biggie here is the debt to equity swap which eliminates a large chunk of their debt. Lots of strings attached, everyone's taking a cut. I'm waiting for more details to come out but so far it doesn't look too bad at all.

[KrauserKrauser]

Eliminating the pay to non working workers is good to see. Working to get your workers more money is one thing, forcing retarded business decisions on your meal ticket is another.

Hopefully they can make the UAW agree with these cuts.

[Ma Deuce]

Well, that's a relief. That waiting had me worried, and I was also concerned that whatever decision was made would be less than acceptable, but so far I don't see anything too unreasonable in those conditions. The passage of this bailout also means the Canadian government will now provide about $3.5 billion as well, presumably under similar conditions.

Anyway, I'm glad Bush finally decided to do the right thing for once, effectively telling certain members of his own party to get stuffed in the process.

[Solauren]

Makes you wonder something

Either #1 - This was the Republican plan all along. George Bush's legacy is now that he saved the American Automotive Industry.

#2 - After 8 years of towing the party line, Bush's eyes opened up and he did the right thing / what he wanted to do.


Anyway, as for the bailout itself, looks good, but I'd like more details.

But cutting 'the fat' is a definate requirement. It's something the UAW/CAW will need to realise.

[Admiral Valdemar]

Under the terms of the plan, if the companies can't demonstrate financial viability by March 31 the loans will be called and the money must be returned, the statement said.

Oh wow. I'm off to sell Congress a bridge, back soon.

EDIT: Added link and I should add that this was a sneaky way of getting the rest of the TARP authorised by Paulson.

[Count Chocula]

Three months to "demonstrate financial viability?" What the heck does that mean - it could take another three months at Ford and Chrysler just to figure out what they need to do. The guys with the purse strings have never, apparently, seen corporate restructuring or turnarounds in action.

The deadline is March 31, and the next day is - yep - April Fools' Day. It would be a PR disaster for Congress to call its loans to the automakers on that day. It also begs the question - if you call a loan on a bankrupt company that has no cash, how will you get the money? Take over the production line?Methinks they'll get a lot more than 3 months to figure out how to make a buck.

[KrauserKrauser]

Agreed, but if nothing else it gives them time to come back to Congress with what it will actually take to get anywhere near profitable again.

Things aren't going to magically turn around for them but at least we'll have a wonderful jobs program that Obama can integrate into his new plans! Hooray for jobs!

[SirNitram]

Eliminating the pay to non working workers is good to see. Working to get your workers more money is one thing, forcing retarded business decisions on your meal ticket is another.

Hopefully they can make the UAW agree with these cuts.

I suspect so; pay is near that of non-union automakers in the south when you stop playing the silly game the media did when prompted, which was take revenue, divide by number of employees.

The Job Bank program was already agreed to be dumped in the last round of negotiations.

So I don't see trouble from them. The 'Must prove viable in three months' is laughable, but. We'll see.

[Ma Deuce]

Three months to "demonstrate financial viability?" What the heck does that mean - it could take another three months at Ford and Chrysler just to figure out what they need to do.

That might be what they're asking for, simply prove they actually have a plan. And it's Chrysler and GM; Ford did not request any money, as they feel they can get through the year on their own. This was mainly thanks to the foresight of Alan Mulally, who apparently saw the credit crunch coming before most of the auto industry, and prepared Ford accordingly.

In any case, this money is not going to cover the kind of restructuring needed, since in order to be viable, GM is still going to have to close a lot of plants and pay a lot of dealerships to shut down. But as Sea Skimmer noted in the other thread, even a $100 billion bailout would be a small price to pay compared to the economic damage of seeing even just GM collapse.

I also note that GM has quitely reopened it's merger talks with Chrysler; Given the car market is not going to rebound anytime soon, it may be necessary to sacrifice one of the automakers to ensure the long-term survival of the other two, and in that event, the logical target would be Chrysler, since they are the smallest, and frankly least viable. If we are forced to sacrifice Chrysler, a "managed dissolution" under the stewardship of either the government or one of the other automakers would obviously be preferable to a sudden collapse.

[The Yosemite Bear]

Eliminating the pay to non working workers is good to see. Working to get your workers more money is one thing, forcing retarded business decisions on your meal ticket is another.

Hopefully they can make the UAW agree with these cuts.

Did you just say that you are against pensions, and continuing retirement for retired workers or disabled workers?

I mean some of these buzzwords are getting thrown around without people realizing what they are saying. It's like Operation Rescue protesting "Spontaneous Abortions" (miscarriages), what they want the mother to die?

[Ma Deuce]

Did you just say that you are against pensions, and continuing retirement for retired workers or disabled workers?

I'm pretty sure he was talking about the "Job Bank", which the UAW has already agreed to eliminate anyway.

[KrauserKrauser]

No, I did not say those things.

I was referring to the Job Bank program that pays laid off workers almost their full hourly wage when they are not working.

That, to me, is seperated enough from pensions, etc that you attempting to put words in my mouth is retarded.

The point of laying off workers is to not have to pay them as they are not currently needed, the job bank was a retarded idea that the UAW somehow forced on GM. Do you want to try and defend this program?

[The Yosemite Bear]

yeah, well one of the things that got mentioned by the conservatives was the elimination of the pension fund as a requirement. that's just mean.

[KrauserKrauser]

Honestly I would prefer the pension fund management and responsibility to be given over to the Unions as they are the labor force and should have control of their own pensions.

That would also require them to have to fully fund it, etc. but why not make the UAW work a bit harder and concern themselves with the future viability of the company, they already have sucha great track record of that.....oh wait, no, they've tried to fuck the company as often as possible for decades.

[The Yosemite Bear]

Well here in yosemite we still have an old school pension, and while there's a lot of low end fighting between the company and the union, we won't strike, and we still have a pension and a health care plan. My dad used to be a United Steel Workers / United Auitoworkders (made parts for custom conversions from scratch prior to the oil crisis of the 1970s causing the elimination of his job in the early Reagan Era.

[aerius]

Just coming in on my newswire feeds, don't have a link yet.

* UAW says pleased with government decision on bridge loans

* UAW says all stakeholders, including management, suppliers, dealers,
will

have to sacrifice

* UAW says disappointed President added 'unfair conditions singling
out

workers'

* UAW says will work with Obama administration to ensure 'unfair
conditions

removed'

Oh fuck this. The bondholders are taking a 66% loss and the shareholders are going to get rammed when they do the debt to equity swap. But taking the proposed pay & benefit cuts is "unfair".

[Glocksman]

Just coming in on my newswire feeds, don't have a link yet.

* UAW says pleased with government decision on bridge loans

* UAW says all stakeholders, including management, suppliers, dealers,
will

have to sacrifice

* UAW says disappointed President added 'unfair conditions singling
out

workers'

* UAW says will work with Obama administration to ensure 'unfair
conditions

removed'

Oh fuck this. The bondholders are taking a 66% loss and the shareholders are going to get rammed when they do the debt to equity swap. But taking the proposed pay & benefit cuts is "unfair".

I don't think the UAW is saying eliminating the 'job bank' (and as a union member myself, I think the mere idea is too much to ask for) is unfair.
IMHO, they're more concerned about pensioners losing health benefits and defined pensions.

While I have little sympathy for 'job bank' people losing their money, I have quite a bit for pensioners who depend upon their benefits being told 'so sad' by a bankruptcy court.

I could be wrong though.
If I am and the UAW is defending the 'job bank', then the UAW can go fuck itself with a rusted railroad spike.

[aerius]

I don't think the UAW is saying eliminating the 'job bank' (and as a union member myself, I think the mere idea is too much to ask for) is unfair.
IMHO, they're more concerned about pensioners losing health benefits and defined pensions.

While I have little sympathy for 'job bank' people losing their money, I have quite a bit for pensioners who depend upon their benefits being told 'so sad' by a bankruptcy court.

GM has around $150 billion in outstanding bonds, 2/3 of which is going to be converted into equity under the plan, and half of that goes right into paying the pension and benefits fund. The bondholders are losing $100 billion while the union is getting $50 billion or so, and they still want to bitch and cry about how it's "unfair". Fucking unreal.

[The Yosemite Bear]

Yeah, mine had a different solution to that problem, after 5 years you can draw pension and you can still work for a non-union shop while drawing said pension. There's now a lot of AFL-CIO / HERE Unite infiltration going on in the retail business because of these "pensioners" (eg we are flooding Rayleys, safeway, etc. Walmart hates us still)

[Enigma]

How come Ford is doing better than the other two? I thought they were also looking for a handout?

[Sea Skimmer]

How come Ford is doing better than the other two? I thought they were also looking for a handout?

They are, but they aren’t in quite the dire situation of only having enough cash to keep existing for another month or two. Ford in general has more products people want, a better reputation and has just done a better job of restructuring before now. Hard to say more then that.

[Admiral Valdemar]

Although Ford really needs to consider exposing the US to the likes of the new Fiesta seen in QoS and Top Gear. Smaller, more economical and ecological cars are the future in the States. Or, at least, they should be, assuming the collapse in oil prices and subsequent fuel price drops doesn't allow the SUV back into the game. Not many people could afford to splash out on cars like the Volt at the best of times, but you don't need something to rival the Prius to improve the overall image of the company and improve efficiency. There are plenty of small petrol and diesel cars that can rival or even surpass your average hybrid for commuting, they just get swamped by the ego-complex that goes with big muscle cars that have to do over 100 MPH with ease.

[J]

...assuming the collapse in oil prices and subsequent fuel price drops doesn't allow the SUV back into the game.

Speaking of which, oil fell past 1 Yergin today.

[Admiral Valdemar]

Speaking of which, oil fell past 1 Yergin today.

We're at milliYergins now. Fortunately(!), the idea of people using this cheaper time for gas prices to splash out on a big truck or new Camaro or something is tempered by a delicious bowlful of Credit Crunch. This still means GM et al need to reassess their whole business model, because I sure as hell don't see this lasting too long either way (and if it does, the car companies are even more fucked).

[Enigma]

Yergin? All I got from Google is Daniel Yergin.