President Bush ordered Rescue Money to be Loaned to GM & Chrysler but No Bailout , especially for current common stock shareholders. A $17.4 billion rescue package for the troubled Detroit auto makers allows them to temporarily avoid bankruptcy and also allows Bush to leave many of the big decisions for the incoming Obama administration. Actions Speak Louder Than Words – Like when none of the G20 Summit Members would shake Bush’s Hand.
The Bridge Loan Term is 3 Years. GM would get $4 billion by Dec 29 and $5.4 billion by Jan 16 2009. Chrysler would get $4 billion by Dec. 29 GM would get another $4 billion by Feb 17 2009 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. United Auto Workers [UAW] members will lose jobs or take pay cuts as part of the deal.
No dividends may be issued until the loans are repaid and the automakers must cut their debt by two-thirds in an Equity Exchange. This will Dilute the Stock perhaps Three to Five Times the number of Outstanding Shares. I’m glad I’m not a shareholder.
The deal is contingent on the companies’ showing that they are financially viable by March 31 2009. If they aren’t – the loans will be called and all funds must be returned. Chapter 11 BK or worse Financial Carnage.
From Chicago Mr Obama also added: ” The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely necessary to save this critical industry and the millions of American jobs that depend on it – while also creating the fuel efficient cars of tomorrow. “
For Now , this prevents the collapse of one of the country’s most important industries during a time of broad economic weakness.
The UAW United Auto Workers union said it was pleased the government had acted to keep the companies out of bankruptcy But it said the deal added unfair conditions. Who said Life was Fair? The Union could have been Busted entirely with Bankruptcy. Speaking of Unfair – it’s Unfair for US Taxpayers and a Free Economy System that has Turned towards Nationalization & Socialism.
Anyway , Automakers and Auto Parts Suppliers are breathing a sigh of relief , at least for a little while. The loans give GM and Chrysler only enough money to last until early next year. After that, they’re likely to need more money to survive.