Barely a week after the US Senate rejected a bailout plan for the ailing US auto industry, US President George W. Bush announced a $13.4 billion emergency loan coming from the $700 billion Wall Street bailout fund, to be followed by a further $4bn.
AFP - US officials Friday announced a 13.4 billion-dollar rescue loan for two of the Big Three automakers, requiring tough reforms, in a move aimed at staving off an economic calamity.
General Motors and Chrysler, facing a threat of imminent bankruptcy, agreed to the loan terms and will get the funds starting in January. GM would get 9.4 billion dollars in January and February and Chrysler four billion in January, officials said.
Ford said it would not be part of the loan program, which could include four billion dollars more for GM pending congressional action.
"These are not ordinary circumstances," President George W. Bush said in announcing the aid.
"In the midst of a crisis and a recession allowing the US auto industry to collapse is not a responsible course of action."
The funds will be drawn from the Treasury's 700 billion dollar Troubled Asset Relief Program (TARP). The companies will provide warrants for non-voting stock, accept limits on executive compensation and perks and give the government priority to other debts, to the extent permitted by law.
An additional four billion dollars from the TARP will be available in February, contingent upon congressional approval of the second portion of that program.
The automakers will have to take steps to demonstrate their viability by March 31.
"The automakers and unions must understand what is at stake and make hard decisions necessary to reform," Bush said. "We intend to send a clear message to everyone involved in the future of American automakers."
He added that restructuring the industry would "require meaningful concessions from all involved in the auto industry."
Among the "targets" established by the loan would be a two-thirds reduction in debt by exchanging debt for equity, more flexible work rules and cuts in wages to make the companies competitive with foreign manufacturers established on US soil.
"The loan will be automatically called by the government and will be repaid in full if certain conditions are not met" by March 31, a senior administration official said.
"The most important one is that the firms must be viable."
The official added that "this does not mean the firms has to be profitable" by March 31 but that "the firms have to be profitable soon."
Chrysler LLC chairman and chief executive Bob Nardelli said a letter of intent for the loan had been signed, adding that "Chrysler is committed to meeting these (loan) requirements."
General Motors lauded the action and said in a statement: "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."
Ford CEO Alan Mulally said his company would not draw on the loans but nonetheless welcomed the action.
"We do not face a near-term liquidity issue," Mulally said.
"But all of us at Ford appreciate the prudent step the administration has taken ... The US auto industry is highly interdependent, and a failure of one of our competitors would have a ripple effect that could jeopardize millions of jobs and further damage the already weakened US economy."
The administration official said the loan would be managed by the US Treasury and that no "car czar" would be appointed, but that president-elect Barack Obama would be allowed to designate one after taking office January 20.
"We have kept them (the Obama transition team) informed throughout the process," the official said.
The official added that the plan did not cover the financial arms of the auto firms, which also are facing distress from the credit crunch and weak economy.
Mired in heavy losses and debt in debt, the Big Three automakers had asked earlier for a government rescue to weather the economic crisis after Congress refused a bailout.
The firms have repeatedly warned that without a package of loans, millions of jobs could be lost, which they say would have devastating effects for the nation's already stumbling economy.
Chrysler said Thursday it was closing its American units for a month from Friday after GM announced it was idling 30 percent of its North American production "in response to rapidly deteriorating market conditions."
Date created : 2008-12-19