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.
quote: Agreed...seriously folks -- if its a loan or not its still tax payer dollars, and it still will be paid by "we the people" however you want to rationalize that or not
quote: The automakers pay back the loans, plus interest.
quote: go name a valid economic reason why the dollar's worth now about 10% of what it was worth in 1950.
quote: After all, the bottom line is my standard of living, and everything else is academic.
quote: As long as my salary is now 10X what it would have been in 1950, that is perfectly fine with me.
quote: The printing presses are running now to expand the money supply in order to help avoid a recessionary cycle.
quote: The automakers would pay back the loans after they get through the current recession. As Chrysler did in the 1980s.
quote: So your supposition that the socialist bailout "worked" assumes that proven free market solutions would have been worse.
quote: It would be nice if we could all wave our hands and make the UAW disappear
quote: I'm against protectionism in general, but I'm also in favor of the Big Three having something close to a level playing field, which does not exist today - not even close.
quote: They failed of their own accord, and if they were allowed to fail, the UAW contracts could be renegotiated or dissolved entirely in bankruptcy proceedings.
quote: Protectionists don't understand that other countries' subsidies do nothing but increase prosperity here. If a foreign government steals from its people to undercut prices for our consumers, why shouldn't we take it? Sure, our wages will go down, but by the same amount as our cost of living.
quote: And the bigger the foreign redistribution model becomes to match our legitimate prices, the greater a chance foreign socialism will be purged by an unhappy populace. Which is precisely the kind of world we want to bring about.
quote: SS and Medicare are just now maturing as ponzi schemes, they can't be papered over anymore with CPI adjustments, tax hikes, and retirement age increases. What we've mortaged to our children is inexcusable.
quote: SS is failing because we spent the money --that was there-- on other things, such as wars  people wonder how we can maintain one of the most expensive wars in history
quote: basically you want the government to step in, abolish the contracts the companies and workers negiotiated in a free market, and impose a government decided salary for all the employees?
quote: Why can't you people ever learn basic facts? We spend 15 times a year on Social Security what we do on the Iraq War, and the money comes out of different buckets anyway. SS is going bankrupt because we give too much to people who don't pay enough into the system. Redistribution of wealth.
quote: SS is going bankrupt because we give too much to people who don't pay enough into the system. Redistribution of wealth.
quote: If anything, SS has the opposite problem:"Critics, such as libertarian Nobel Laureate economist Milton Friedman, say that Social Security redistributes wealth from the poor to the wealthy."http://en.wikipedia.org/wiki/Social_Security_(Unit...
quote: However, to move from that to the claim that the program transfers money from poor to rich is utter silliness.
quote: A low-income payor will receive much more from SS than they pay into the program, much more than they would have received even investing those contributions. For those paying at or near the cap, that isn't true. Their benefits are less than what they'd receive from investing their payments.
quote: I'm against protectionism in general, but I'm also in favor of the Big Three having something close to a level playing field, which does not exist today - not even close
quote: I have $10 - I "loan" you $8...I'm now left with 2
quote: When the government gets low on funds -- how do they get money.......higher taxes. 'nuff said.
quote: As always, if you don't like it, there are lots of other countries with space. Don't feel as though we're all begging you to stay.
quote: The loan may be unsecured -- but its still a loan, which implies ownership of those assets. Just as my bank owns a share of my house, the federal government now owns a stake in both GM and Chrysler.
quote: How so? Do you really think delaying the inevitable for a few months is helpful to anyone?
quote: Quite frankly, this would simply worsen the current crisis. To function properly, interest rates must reflect the actual risk involved in making the loan. When risk is high, interest rates should be also, lest you throw good money after bad and worsen the cycle further.
quote: If the government doesn't make day-to-day decisions, it isn't actively directing GM.
quote: I've heard economists say the Federal Reserve could have done more to fight the recession that became the Great Depression, but I don't usually hear them say the formation of the Fed caused the Depression.
quote: Or even better, cut out the middle man, and just explain why current U.S. action is bad for America
quote: It's amazing the levels of socialism the American people have just supported.
quote: The Republicans requirements for an organized bankruptcy and steep cuts in union pay totally went out the window.
quote: No one asked for laws regulating unions. They simply asked the UAW to lower their rates to a level which would allow their employers to survive without government assistance. . . a request the UAW refused point-blank.
quote: and the UAW already agreed to concessions on benefits and the jobs bank programs
quote: In any case, your assumption that fraudulent accounting led to this crisis couldn't be further from the truth.
quote: Government enforcing laws against fraud is regulation. What Fit is arguing for is no regulation of any kind. Therefore you already missed the point.
quote: If you think the failure of one hedge fund -- which didn't even occur until long after the crisis came to light -- led to this situation, you are sadly misinformed.
quote: Then he decided he didn't like everyone disliking him so he decided to work with Democrats thus becoming one in everything but name.
quote: It's amazing the levels of socialism the American people have just supported. People say they're against these bailouts yet they vote in the very congressmen who propose it.
quote: When the term ends, even if he did something that helped stabilize the economy, he will still be remembered as the worst president since Nixon
quote: most had plenty of information to make a decision on the presidential race.
quote: Truth is the average Obama voter doesn't have the slightest idea about his voting record in the Senate, or what he was actually proposing besides the word "change".
quote: Besides, at the end of the day, I'd much rather have Obama's supporters be idiots than deal with McCain's VP choice in the White House being an idiot.
quote: Oh pffft ! Thats only anti war pascifists hippies saying that.
quote: His economic policies aren't half as bad as Clinton.
quote: And his personal life and maturity level is light years beyond.
quote: I have lost tons of respect for him. But worst president since Nixon ??? In fact, why did you use Nixon when Carter is the CLEAR choice for worst president of all time.
quote: Carter actually was only slightly better than Nixon during his presidency
quote: Nixon has been exposed as being a president of character far more questionable than Bill Clinton
quote: Bush's terrible grades and demonstrated lack of intellectual curiosity are certainly more concerning
quote: Nothing worse than a hypocrite.
quote: Carter's policies are what led us to 15% unemployment and 20% interest rates, the worst of the entire 20th Century.
quote: Nixon ordered one coverup to help his party. Clinton ordered dozens, most to help him personally. I don't recall Nixon forcing women to have sex with him either, or getting campaign funds from foreign nations, then selling them top military secrets. But you go on believing your Democratic view of history.
quote: You mean the "terrible grades" that were BETTER than Kerry's, his opponent in the 2004 election, and someone I'll bet anything you yourself voted for.
quote: Nothing he was accused of even compares to Nixon
quote: The unemployment rate at its highest was 10% in 1983
quote: Kerry is also a genuine war hero
quote: WTF? Violent rape doesn't compare? Selling government secrets to foreign agents doesn't? Using police forces (state troopers) to intimidate women into sex? If you think that doesn't compare to Nixon's hiding a tape recording or two, you're a sick individual.
quote: 11%, November 1982, 18 months after Reagan took office. Once his policies kicked in, it went down continually for the next 10 years.
quote: Rofl, right. If shooting a teenager in the back while spending only 3 months "in country", then before getting a purple heart for a splinter wound treated with a band-aid, then requesting an early release makes one a war hero, then I'm Rambo. I won't even go into the "baby killer" crap he spewed when he got home, it's already been proven he made it all up.
quote: Sorry, I was referring to the more reasonable accusations.
quote: Obviously you took the discredited Swift Boat Veterans for Truth too seriously
quote: John McCain has a far more exaggerated military history
quote: Did Clinton sell secrets to the Chinese? They wound up with them, and he wound up with the money. Maybe it was just an accident, but I can't see that it matters much.
quote: Unlike you, I have some grasp of American history...whereas Congress failed to impeach Clinton.
quote: Touche. Congress failed to pass all articles of impeachment, and measures to remove him from office failed.
quote: The Republicans requirements for an organized bankruptcy and steep cuts in union pay totally went out the window. Sure the auto makers might be able to get that out of the UAW on their own, but I doubt it.
quote: 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.
quote: "And why do you look at the speck in your brother’s eye, but do not consider the plank in your own eye? Or how can you say to your brother, ‘Let me remove the speck from your eye’; and look, a plank is in your own eye? Hypocrite! First remove the plank from your own eye, and then you will see clearly to remove the speck from your brother’s eye."
quote: This isn't money out of your pocket, and it's a step toward big gov actually taking control of our badly structured, union-fanatic auto industry.
quote: Aren't both of these against free market systems
quote: We wouldn't have needed anti-trust laws if monopolies weren't abusing their power and harming consumers.
quote: Intellectual property is still property.
quote: ...name one historical case of this actually happening.
quote: A patent is simply government enforcement of property rights
quote: due to the volume Standard shipped.
quote: Historian Burton Fulsom has studied the company more than any other comtempory
quote: <sarcasm>ah, right.
quote: Google doesn't make one smart.
quote: I don't know, there was this tea company that did some pretty messed up things a while back.
quote: who's "unions" purposely defy the free market system?
quote: I don't know whats worse - being held by the balls from the UAW, or being held by the balls from liberals like Obama , Pelosi, and Reid.
quote: I don't know if you're aware, but there are many industries that defy the free market system in the same way you describe.
quote: yet electricity companies income are protected by local governments.
quote: So how is that a free market?
quote: I'm curious, what do you think that the "liberals" are going to do to the auto industry that's so bad? Is there something worse than allowing them to fail?
quote: I also think that a negiotiated bankruptcy coupled with goverment loans - like Chrysler had in the 80's - probably is a good path for GM and Chrysler.
quote: Particularly if Obama stands up to the UAW so that everyone really does share in the pain.
quote: That's only one example, but a decent one as the French government will bail out any kind of firm almost any time, right down to taking ownership stakes. Constant coddling of industry in the long run doesn't get you anywhere.
quote: sides from what the "liberals" will do, it's pretty clear. Unions gave record amounts to Democrats this year, so they'll be calling in their favors.
quote: I might also point out to you that the industry got to the point of failure during a conservative administration, with a conservative congress for six out of the eight years.
quote: The failures and mistakes this administration has made are there because it has not governed conservatively, not because it is conservative.
quote: This isn't money out of your pocket
quote: They're gonna have to fight to succeed.
quote: In less than six months, both companies will be back asking for more money. Want to bet on it?
quote: But I guarantee a 14B loan will be cheaper than paying unemployment for all of the people that will lose their jobs.
quote: They won't lose their jobs and have to file for unemployment. The company would reorganize, get rid of the union, and turn into a shop like Toyota/Honda paying competitive wages.
quote: The former union workers would have to settle for something less than their current "golden parachute" benefits. Its quite humorous how all these people start bashing the executives and CEO's for their ridiculous salaries and benefits when a company goes down....but no one does that to the unions who are responsible for the same thing. Hypocritical all the way.
quote: So you aren't going to find a job in some other industry either.
quote: Absolutely. Generations of CEOs voted for short-term benefit of appeasing the UAW, rather than face the crisis we all knew was coming.
quote: I believe GM in itself is somewhat tied with Toyota in sales figures.
quote: the "Big 3" (how ironic of a name) have been making crap for the last 30 years
quote: You will see them back in 8 months asking for more
quote: Brace for impact America, the sh*t hasn't even hit the fan yet and people are already falling overboard.
quote: Sorry, but your figures aren't even close to the most likely scenario...
quote: Add it all up, and it works out to an expected cost of maybe $700M in unemployment benefits -- a tiny trickle compared to giving billions every month to these companies.
quote: Gov't, Financial, and auto industry experts all agree chapter 11 is not viable. They may try it, but it will best delay chapter 7 for some months.
quote: I think when you have over $10 trillion in debt, you're already bankrupt.
quote: ". . . protect the taxpayer by ensuring that only financially viable firms receive financing."
quote: Or any mortgages get renegotiated.