Santa Claus comes early for General Motors and Chrysler

It’s been a rough few months for General Motors and Chrysler. Both Detroit auto giants have been struggling with a sharp decline in sales and dwindling cash reserves. Cross-town rival Ford has seen similar drops in sales, but it is not nearly in the same cash-strapped position as GM and Chrysler.

The Senate couldn't come to an agreement on a $14 billion USD loan package to bailout GM and Chrysler earlier this month, so the matter was kicked back to President Bush who at first was reluctant to meddle with the free markets. However, President Bush today announced a plan to provide low-interest loans to GM and Chrysler.

The federal government will make available $13.4 billion USD in loans to GM and Chrysler over the next two months -- an additional $4 billion USD will be brought to the table with the second half of the $700 billion USD bailout package is opened up in February.

"The terms and conditions of the financing provided by the Treasury Department will facilitate restructuring of our domestic auto industry, prevent disorderly bankruptcies during a time of economic difficulty, and protect the taxpayer by ensuring that only financially viable firms receive financing," added the White House in a statement to the press. "If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury."

Other conditions in the loan include a limit on executive compensation and perks, and provisions that the Detroit automakers work out more favorable terms with its labor unions and creditors.

Chrysler Chairman and CEO Bob Nardelli understandably was excited about the news and thanked the Bush administration for its vote of confidence.

Nardelli said in a statement, "A letter of intent was signed which outlines the specific requirements that must be achieved. These requirements will require consideration from all constituents, requiring commitment first in principal, leading to implementation this coming year. Chrysler is committed to meeting these requirements."

For its part, General Motors had this to say about the government loans:

We appreciate the President extending a financial bridge at this most critical time for the U.S. auto industry and our nation's economy.  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.

This will allow us to accelerate the completion of our aggressive restructuring plan for long-term, sustainable success.  It will lead to a leaner, stronger General Motors, a GM that is:
  • Dedicated to great products, exciting design, and world-class quality
  • Fully committed to leading in energy-saving vehicles and technologies,
  • Responsive to the needs of our customers, our stakeholders and the communities we live in and serve.
We know we have much work in front of us to accomplish our plan.  It is our intention to continue to be transparent as we execute our plan, and we will provide regular updates on our progress.  We again thank the Administration for this important support of our industry at this challenging time, and we look forward to proving what American ingenuity can achieve.

Although GM stated earlier this week that it planned to go ahead with its Chevrolet Volt development with or without help in the form of a bailout, the company is no doubt pleased to have funds set aside to help complete the program. The Volt program is GM’s most high-profile and likely riskiest ventures in decades.

Likewise, Chrysler will have to find its way in the changing automotive landscape. The company’s truck and SUV sales have tanked along with the rest of the industry, but even some its mainstream offerings like the Dodge Avenger/Chrysler Sebring and Dodge Nitro have failed to leave a lasting impression on American consumers. The company also is noticeably lacking when it comes to highly fuel-efficient vehicles.

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