[ausev] Bush announces auto rescue

[JohnFM]

http://money.cnn.com/2008/12/19/news/companies/auto_crisis/index.htm?postversion=2008121909

Bush announces auto rescue
Government to loan GM and Chrysler $13.4 billion from Wall Street
bailout fund so that the embattled auto firms don't run out of cash.

By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 19, 2008: 12:58 PM ET

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NEW YORK (CNNMoney.com) -- President Bush announced a rescue plan for
General Motors and Chrysler LLC Friday morning that will make $13.4
billion in federal loans available almost immediately.

The money will come from the $700 billion fund set aside to bailout
Wall Street firms and banks in October.

With these loans, Treasury will have committed virtually all of the
$350 billion of that fund that it can hand out without additional
authorization from Congress. Once Congress releases the other $350
billion, the two automakers will be able to borrow an additional $4
billion.

GM (GM, Fortune 500) will get $9.4 billion from the first allocation
of federal loan money, while Chrysler would get the other $4 billion.

The loans are for three years but the money will have to be repaid in
full within 30 days if the firms do not show themselves to be viable
by March 31.
Bush: "Preventing disorderly bankruptcy"

During brief remarks at the White House, President Bush said in normal
times he would have not been in favor of preventing a bankruptcy of
the two companies. But the current state of the economy and credit
markets left him no choice but to act.

"Government has a responsibility to safeguard the broader health and
stability of our economy," he said. "If we were to allow the free
market to take its course now, it would almost certainly lead to
disorderly bankruptcy and liquidation for the automakers."

"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," Bush
added.

In a statement, President-elect Barack Obama said today's loan was "a
necessary step to help avoid a collapse in our auto industry that
would have devastating consequences for our economy and our workers"

Obama added that "the auto companies must not squander this chance to
reform bad management practices and begin the long-term restructuring
that is absolutely required to save this critical industry and the
millions of American jobs that depend on it."
Conditions similar to auto bailout bill

The terms of the loan are similar to those set in the auto bailout
legislation that was passed by the House last week but was shot down
in the Senate.

Executives at GM and Chrysler must agree to limits on their
compensation and eliminate perks such as corporate jets. The companies
also must issue warrants, which convert into non-voting stock, to the
government.

GM Chairman and CEO Rick Wagoner, who had previously agreed to reduce
his salary to $1 a year in return for the federal loans, said at a
press conference Friday he has no intention to resign. Some critics of
GM have called him for to do so.

"You think I would have gone through what I did the last 2 months if I
didn't want to stay?" he said.

The loans do not include the concept of a so-called "car czar" to
oversee the automakers, although it does say that a designee of the
President would determine if the automakers are making the changes
necessary for them to be considered viable.

The Bush administration official said Treasury Secretary Henry Paulson
would fill that role in the remaining days of the current
administration.

The loans call for the automakers to prove they are viable by March
31, even though they are not expected to be profitable by that date.
They must submit the details of the plans by Feb. 17.

The government wants the automakers to reduce their debt load by
two-thirds via a debt for equity exchange with current bondholders and
get the United Auto Workers union to agree to wages and work rules
competitive with non-union plants operated by Asian auto manufacturers
by the end of next year.
Talkback: Can U.S. automakers survive?

Wagoner said negotiations with GM debt holders and the union will
begin almost immediately now that the loans are in place. He added
that the company is confident it will be able to meet the targets set
out as terms of the loan.

In addition, the government is calling for GM and Chrysler to use
their stock to pay for half the funds needed to cover future retiree
health care expenses, which will be paid by union-controlled trust
funds, rather than the automakers themselves, starting in 2010.

But there is flexibility for the companies and the incoming Obama
administration to allow the loans to continue even if these targets
are not reached, as long as GM and Chrysler can provide an explanation
as to why they are viable without hitting those targets.

Republican senators demanded hard targets for labor union concessions
and cited the UAW's resistance to agree to them as the reason the bill
died last week.

A Bush administration official cautioned that the government should
not play a big role in the union negotiations that will take place in
the next three months.

"We do not feel it is appropriate for government to dictate the
specific terms of negotiations between management and labor or
management and dealers or management and creditors," the official
said.

UAW President Ron Gettelfinger said the union does not want further
concessions to be spelled out in the loan agreement, but that the
union would hold talks with the government about how to make the Big
Three more competitive.

"We will work with the Obama administration and the new Congress to
ensure that these unfair conditions are removed as we join in the
coming months with all stakeholders to create a viable future for the
U.S. auto industry," he said.
Time was running out

GM (GM, Fortune 500) has warned it will fall below the minimum amount
of cash it needs to continue to operate without $4 billion in federal
loans before the end of the month. Privately held Chrysler said it
will need $4 billion or it will also run out of cash early next year.

Ford Motor (F, Fortune 500) has more cash on hand and has said it
should be able to avoid tapping into federal dollars unless the weak
auto sales continue longer than it expects in 2009.

Shares of GM soared more than 10% Friday morning on the news of the
loan and Ford was up 5%.

U.S. auto sales plunged to 26-year lows last month as tight credit,
rising job losses and weak consumer confidence have led to a virtual
collapse in the auto market.

All of the major automakers, including Asian automakers Toyota Motor
(TM) and Honda Motor (HMC), are cutting back production. But the
situation is particularly severe at GM and Chrysler.

In the last week, those two automakers announced shutdowns of assembly
lines for at least a month, several weeks longer than the typical
shutdowns during the December holiday season. To top of page
First Published: December 19, 2008: 8:36 AM ET