Big Three Bailout: Bush Offers Loans with Bankruptcy Strings

December 19, 2008
President Bush announced this morning that the government will pump nearly $14 billion into GM and Chrysler to ensure their survival into the new year, with an additional $4 billion to be made available in the spring.

ABCNews reports the White House has signed off on low-interest loans for GM and Chrysler which will come with "tough" conditions, according to the network.

Politico.com, meanwhile, says the package involves "$13.4 B in short-term financing from the TARP, with an additional $4 B available in February, contingent upon drawing down the second tranche of TARP funds."

It also requires the companies do the following:

  • Reduce debts by two-thirds via a debt for equity exchange.

  • Make one-half of VEBA payments in the form of stock.

  • Eliminate the jobs bank.

  • Work rules that are competitive with transplant auto manufacturers by 12/31/09.

  • Wages that are competitive with those of transplant auto manufacturers by 12/31/09.

  • Negotiations with dealers and suppliers on contracts will also be required by 3/31/2009.

The White House's plan is centered around the notion of "viability," and pins the automakers for the money if they do not meet viability standards by March 31, 2009. Those standards include limits on executive compensation voted on by members of the House of Representatives and the tougher labor targets offered by Senate Republicans.

A free-market solution now, the President said, would "almost certainly lead to a disorderly bankruptcy." Allowing the industry to collapse "is not a responsible course of action." The plan gives the industry a window in which to restructure without having to file bankruptcy, President Bush added.

No "car czar" will be named, leaving Bob Lutz's honorary title intact for now. Treasury secretary Hank Paulson will be the manager of the process until the Obama administration takes office.

It's expected that any new work rules, pay rates, and debt downsizing gained by GM and Chrysler would also be sought by Ford--though Ford says it can make it through 2009 without drawing from federal loans.

Commentors are calling this plan a bankruptcy without the courts involved. The Bush Administration is said to be involving the Obama Administration in the negotiations to ensure the deal won't hit snags during the transition in January.

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