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US Government to Give Loans to GM & Chrysler

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http://business.theglobeandmail.com/servle...y/Business/home

WASHINGTON — The U.S. government will provide $17.4-billion (U.S.) in short-term financing to U.S. automakers, the White House said Friday. It expects General Motors Corp. and Chrysler LLC to take advantage of the loans immediately.

The loans will be recalled if the companies are not economically viable by March 31. The companies must accept limits on executive compensation and eliminate certain corporate benefits, such as using private jets.

The government will have the power to block any transactions over $100-million.

A senior administration official, speaking on condition of anonymity because of the sensitivity of the issue, said $13.4-billion in short-term financing will be drawn from the $700-billion Wall Street rescue program, with another $4-billion to be added later.

President George W. Bush will speak about his administration's plan to avoid collapse of the U.S. auto industry at 9 a.m. (ET) at the White House.

The Bush administration had been weighing several approaches to assisting the automakers, including short-term loans. Administration officials said Thursday they were considering an “orderly” bankruptcy process for the troubled companies.

The Bush administration is convinced the ailing economy could not withstand the demise of Detroit's Big Three.

A decision on how to help them is needed quickly as the carmakers suffer from their slowest sales in 26 years and dwindling operating cash.

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Someone found a brain today.

So let me get this straight: The Bush administration has decided to use the TARP fund to help teh automakers, as per their original request. Everything else until this point has just been one big drama, for show. Idiots.

At least they're getting it.

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It sounds as if there aren't too many requirements and conditions tied to this, aside from becoming viable and having a positive net present value on March 31. It is doubtful that they will reorganize in 3 months, and be able to prove viability. I think in March we'll be having the same discussion we had this month, and GM and Chrysler will be looking for another loan. They should be forced to bankruptcy on March 31 if they haven't fixed the problems by then. If they just keep kicking the can down the road, they will never fix the true problems.

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Someone found a brain today.

So let me get this straight: The Bush administration has decided to use the TARP fund to help teh automakers, as per their original request. Everything else until this point has just been one big drama, for show. Idiots.

At least they're getting it.

Did you expect anything less?

The big issue is GM needs to get to 2011 and to do that it needs to sell cars. In a time where Toyota will show a loss the odds og GM getting car slaes back soon are not good.

Time to start making the needed cuts and stick to it. Time to use the economy excuse as the reason to do many of the things needed to have been done 20 years ago.

This is not a time for GM to be conservitive as they always are. It is time to make the needed painful moves.

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It sounds as if there aren't too many requirements and conditions tied to this, aside from becoming viable and having a positive net present value on March 31. It is doubtful that they will reorganize in 3 months, and be able to prove viability. I think in March we'll be having the same discussion we had this month, and GM and Chrysler will be looking for another loan. They should be forced to bankruptcy on March 31 if they haven't fixed the problems by then. If they just keep kicking the can down the road, they will never fix the true problems.

This has always been about buying time. Both GM and Ford are well on track to 'fixing' their problems, but the economy has knocked 6 million units out of 2008's sales. How could anyone be expected to survive that? Or have you not heard that Japan Inc is having troubles back home, too?

Despite Washington's (and Ottawa) posturing, this has always been about whether or not North America wants a viable auto industry going forward. Japanese transplants are not a viable auto industry: they are window dressing; they are insurance against future trade wars; they are tokens in the PR war of who is American and who is not.

I followed the electronics wars of the late '60s and the parallels are scary. We are far too complacent about what our trading partners are up to. Just ask any former executives of Zenith or Philco or Magnavox.

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Ford is on their way to fixing problems, they don't need a loan right now and might get $6 billion for Volvo and can keep their focus on the Ford brand. If Ford could shed the legacy costs and get the pay rate (including health care) equal to the foreign transplants they would be in good shape. GM has a lot more problems than Ford right now.

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This is an interesting development. I'm a long time Bush hater, but it is nice to see he recognizes the importance of the auto industry and is doing something, while the scum in the Senate from his own party did nothing..

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Ford is on their way to fixing problems, they don't need a loan right now and might get $6 billion for Volvo and can keep their focus on the Ford brand. If Ford could shed the legacy costs and get the pay rate (including health care) equal to the foreign transplants they would be in good shape. GM has a lot more problems than Ford right now.

Dude get your facts checked. Go to GM.com - click investors relations - click quarterly reports for 2007. You will see how restructuring got them profits for Q1 and Q2. GM's plan was working till the market hit the stone on their head. Ford is just better because it is smaller and got some good change this year by selling LR and Jaguar.

Edited by smallchevy
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Ford is on their way to fixing problems, they don't need a loan right now and might get $6 billion for Volvo and can keep their focus on the Ford brand. If Ford could shed the legacy costs and get the pay rate (including health care) equal to the foreign transplants they would be in good shape. GM has a lot more problems than Ford right now.

The truth is Ford just got their 20 billion dollar loan 2 years ago because they were in worse shape after Bill Ford got done playing.

They put their plants up for collateral.

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GM is going to have to use some of the Billions to close redundant dealers, there are just too many competing for the same pickup, mid size and compact car buyers. Some compare G5 to Cobalt or GMC vs. Chevy p/up and get the one that is $50 less.

No need for Chevy to have some dealers a few miles apart in many suburbs.

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it'll be interesting to see how the requirements work out for the loans. i believe they have to get their balance sheet to the positive, which means clearing over $70billion of debt, by March 31st, or the loans will be canceled.

obviously, I am happy to see GM live to survive another day. the purpose of the loans within GM appears to be to keep the lights on and weather this tough economic time for the auto business. somehow, I believe this will not be enough.

watching the press conference I get the feeling that the national press corps, and the casual observer of the public at large is going to get the same laissez faire feeling from the leaders at GM that has seemed consistent over the years. though I want to beleive in them and I do see there is a lot of good work going on, I wish they could give more concrete answers or at least appear a lot more serious on the issues that we see as the fundamental problem. on the UAW/wage competitve question it was a wait and see answer. on the sale and redefinition of the brands it was a wait and see approach. i have a lot of faith in this company, I hope they work it out is all I can say. from their own presentations though, it's easy to see why the national media slams them in my book. they in no way compare to the leaders from JP Morgan for example.......on too many fronts they seem inadequately prepared or comprehensive.....but that's okay, we will wait and see....yet again

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it'll be interesting to see how the requirements work out for the loans. i believe they have to get their balance sheet to the positive, which means clearing over $70billion of debt, by March 31st, or the loans will be canceled.

obviously, I am happy to see GM live to survive another day. the purpose of the loans within GM appears to be to keep the lights on and weather this tough economic time for the auto business. somehow, I believe this will not be enough.

You're right. I think the total cost could be closer to $100 Billion. They'll just take the money out of our hands of course. The plan has some nice stips though.

They must:

Demonstrate financial viability by March 31st or pay the loans back (If they can't it's CH11 then)

Open their books to the manufacturers and allow the government to block transactions over $100 Million

Limit executive pay and eliminate bonuses.

No dividends on stock until the government has been paid back.

Pay the unions retirement funds with 50% equity(stock)

Eliminate paying union workers when they're not working. So if GM idles a plant for 30 days because of excess capacity, no one gets paid. And no

jobs bank.

And have union costs and rules competitive with foreign automakers by Dec 31, 2009. (the sticking point for the Senate)

Oh and the government says they will examine the financials of the companies. Which must mean they haven't already?! So we're pitching nearly $20 Billion into GM and don't know how deep the hole their in is?! What?!

Edited by network engineer
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i'm gonna guess it's that they will assume responsibility of examining financials going forward...since technically we have a stake in them now. i've been reading plenty of articles about how the administration was going over the 'books', financials, all over the past two weeks. you're right, those are great stipulations.

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I followed the electronics wars of the late '60s and the parallels are scary. We are far too complacent about what our trading partners are up to. Just ask any former executives of Zenith or Philco or Magnavox.

As a kid back in the 60's I heard people saying that 'sure, Japan is building cheap radios but they cant build decent televisions'. Then it became cars, then home appliances, then computers, now I hear that they cant design decent software.

Japan is a lot like Microsoft in that regard. They arent that strong at break through research (yet). But they are hell on wheels at refining other peoples work.

I talked to a Japanese engineer for NEC years ago about copyrights. He said that Americans would copyright a 'car'. But the Japanese would copyright a 'blue car' then a 'red car' then a 'green car' etc. I have always remembered that and how it shows a very different focus in thought processes.

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We'll I know that paying for liposuction(superficial restructuring of GM or Chrysler) for a patient without removing their brain tumor(the UAW) is a futile task.

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This is good news for millions of workers during the holidays, but it's just a stopgap. Consider this:

There are many parallels between the American economy in 2007-2008 and the Japanese economy in 1990-1991. Both were facing massive asset deflation pressures, a housing crash, large banking failures, widespread lack of confidence in the financial system and a hope that 0% short term interest rates would remedy the economy.

Domestic Japanese auto sales declined for most of the 1990s and are still down over 30% from the 1990 peak (source: Japan Automobile Manufacturers Association):

1987 6,018,399

1988 6,721,004

1989 7,256,673

1990 7,777,493

1991 7,524,759

1992 6,959,073

1993 6,467,279

1994 6,526,696

1995 6,865,034

1996 7,077,745

1997 6,725,026

1998 5,879,425

1999 5,861,216

2000 5,963,042

2001 5,906,471

2002 5,792,093

2003 5,828,178

2004 5,853,382

2005 5,852,068

2006 5,739,506

2007: 5,353,645

2008: 5,110,000 (estimated)

2009: 4,860,000 (projected)

A 30% decline from our peak of around 17M light vehicle sales puts sales in and around the 12M range for years to come. At that level (or less) just how many car factories and manufacturers can make money and survive?

Edited by buyacargetacheck
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I stumbled across this. It's an interesting read and there are articles that go back to June.

http://www.christonium.com/automotive/ItemID=12296890443662

here's a snippet.

December 19, 2008

With GM and Chrysler in dire need of cash, President Bush announced a little after 9:00 this morning a bailout for both auto companies. The President said given the current state of the auto industry a disorderly failure was not an option given the potential fallout to the already fragile US economy. Under normal economic conditions, the President would have preferred a Chapter 11 bankruptcy restructuring.

Blame was also placed on Congress for not acting earlier and as a result the President will allocate money from the Troubled Asset Relief Program (TARP) to prevent a collapse of the industry.

The auto companies will get 3-months to develop and present plans to restructure. If not, the loans will be called and the companies will face certain bankruptcy............

Entire contents © 2008 The Automotive Lyceum All Rights Reserved

Edited by 97regalGS
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As a kid back in the 60's I heard people saying that 'sure, Japan is building cheap radios but they cant build decent televisions'. Then it became cars, then home appliances, then computers, now I hear that they cant design decent software.

Japan is a lot like Microsoft in that regard. They arent that strong at break through research (yet). But they are hell on wheels at refining other peoples work.

I talked to a Japanese engineer for NEC years ago about copyrights. He said that Americans would copyright a 'car'. But the Japanese would copyright a 'blue car' then a 'red car' then a 'green car' etc. I have always remembered that and how it shows a very different focus in thought processes.

Not quite what I meant. Hitachi, Sanyo and others are guilty of dumping televisions on our shores in the '60s and '70s until one by one all the American names were gone, except Zenith which held out until '01 but then went bankrupt and was absorbed by LG. Where is all that technology now? Where are all those patents? Who owns them? We won't be seeing any American made TVs any time again, will we?

That's okay, the Pentagon can always order their screens from Korea.

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I keep hearing about the millions of jobs this will save, but if I'm not mistaken, the industry is expected to continue downward in sales. If that happens more and more autoworkers are going to get let go. So this is more like putting a tourniquet on. You're going to lose the limb but keep the victim alive right? GM will shed thousands of jobs but hopefully come out smaller and profitable.

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I keep hearing about the millions of jobs this will save, but if I'm not mistaken, the industry is expected to continue downward in sales. If that happens more and more autoworkers are going to get let go. So this is more like putting a tourniquet on. You're going to lose the limb but keep the victim alive right? GM will shed thousands of jobs but hopefully come out smaller and profitable.

Yes.

If US market 'recovers' to 14m vehicles/yr., you still need to take the capacity for 2-3million cars out of the system---a majority of those will be Domestic nameplates, although there's sure to be others that feel some pain.

Even Japan's market has shrunk precipitously---as well as a Euro slow down---mean they'll be lots of blood shed in the next 12-18 months.

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becoming viable and having a positive net present value on March 31

It's very easy to do using just a few spreadsheets. The problems start when reality sinks in, LOL.

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These should be, in essence, the bridge loans they asked for. It's the money they need to survive until a new Administration is in place and they can negotiate real restructuring finance.

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