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| If Auto Makers meet strict non-binding goals they'll get $17.4 Billion |
| 2008-12-19 |
| The White House announced a $17.4 billion rescue package for the troubled Detroit auto makers that allows them to avoid bankruptcy and leaves many of the big decisions for the incoming Obama administration. Speaking from the White House, President George W. Bush said the administration decided against forcing a bankruptcy to compel cost-cutting, in order to avoid the risk that consumers would desert one or more of the companies and touch off an industry collapse, deepening the current economic downturn. "In the midst of a financial crisis...allowing the U.S. auto industry to collapse is not a responsible course of action," Mr. Bush said. "Under ordinary economic circumstances, I would say 'this is the price that failed companies must pay' and I would not favor intervening to prevent the auto makers from going out of business," the president said. "But these are not ordinary circumstances." The deal would extend $13.4 billion in loans to General Motors Corp. and Chrysler LLC in December and January, with another $4 billion likely available in February. It also would provide the government with non-voting warrants, although the exact amount was unclear immediately. Ford Motor Co. has said it doesn't need short-term assistance. The deal is contingent on the companies' showing that they are financially viable by March 31. If they aren't, the loans will be called and all funds must be returned, officials said. The deal generally tracks key provisions of the bailout legislation that nearly passed Congress earlier this month. But it is relatively lenient in allowing the companies to show their viability. It defines viability as having a positive net present value -- a way of gauging the companies' worth, taking into account all their future obligations. Notably, it provides significant flexibility to the companies in showing their viability. It sets out targets for the companies to hit in determining their financial health, such as reducing debt and current cash payments for future health care obligations. But according to a White House fact sheet, the targets "would be non-binding in the sense that negotiations can deviate from the quantitative targets...providing that the [company] reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations." One potential move that could help the companies achieve some savings: the companies will be required to reach new agreements with major stakeholders, including dealers and suppliers, by March 31. Determining viability apparently will be up to the Obama administration. The agreement designates a person to oversee the government's effort, although officials stopped short of referring to that as a "car czar." For the outgoing Bush administration, that person will be Treasury Secretary Henry Paulson. President-elect Barack Obama will choose his own point person later. Previously, the Bush administration planned to coordinate with the Obama camp on selection of a car czar who would continue to serve. Overall, the deal appeared to represent a modest step in the administration's efforts to put the auto makers on a long-term path to viability. By forsaking a trip to bankruptcy court, the White House gave up its most powerful weapon to extract concessions from the companies and their workers, suppliers, dealers and creditors. But it likely will achieve what officials recognized as a more important -- and perhaps conflicting -- goal: preventing a collapse of one of the country's most important industries, at a time of broad economic weakness. The administration was particularly worried about what it termed a "disorderly" collapse of the industry. "We lost 533,000 jobs last month," Mr. Bush said in an appearance Thursday. "What would another million jobs lost do to the economy? What would that do to the psychology in markets? What would that do -- how would that affect the working people? And so as you can tell, we're all in, in this administration. And if need be, we'll be in for more." On Friday, all three U.S. auto makers issued statements commending the White House for stepping in. "We appreciate the president extending a financial bridge at this most critical time for the U.S. auto industry and our nation's economy," GM said. "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 reiterated that it isn't facing a near-term liquidity crisis but said it inevitably would be hurt by the failure of GM or Chrysler given the interdependency of the auto industry, including suppliers. Chrysler said it appreciated the "administration's confidence" in the company and vowed to get right to work on achieving cost concessions. "We intend to be accountable for this loan, including meeting the specific requirements set forth by the government," Chrysler chief Robert Nardelli said a prepared comments. The statement also noted that Chrysler parent Cerberus Capital Management LP had already agreed to "forgo any benefit from the upside that would, in part, be created from the bridge loan and any other government assistance that the company may obtain." The involvement of a private-equity firm in the rescue program has been a ticklish political issue. Separately, Chrysler said it is revamping its sales and marketing operations and that Deborah Meyer is stepping down as chief marketing officer after less than 18 months on the job. Among other things, the company's China efforts will centralized at headadquarters in Michigan. Also, Philip F. Murtaugh, who was hired a year ago as Asia chief, will be leaving the company. |
| Posted by:GolfBravoUSMC |
| #16 IIUC - the "job banking" runs two years with caveats for retraining opportunities, etc. |
| Posted by: Frank G 2008-12-19 20:44 |
| #15 yep - as hard to explain to the regular Joe as to why bailout-required companies should be offering "performance bonuses", huh? I make no excuses for the W-regime's exit performance other than they're just trying to keep the finger in the dike til the new Prez and Congress can make good on their hope-n-change promises |
| Posted by: Frank G 2008-12-19 20:42 |
| #14 Good point Frank. I just learned about 'Job Banking' this morning. Never heard about it before. What this is (and correct me if I'm wrong) is that if a UAW worker looses his job he gets unemployment _and_ pay for up to 95% of his wages and even after unemployment runs out he can still get up to 95% of his wage - some for _years_. I wonder just how many regular joe's know what is in those UAW contracts we are going to have to pay for with this |
| Posted by: CrazyFool 2008-12-19 20:34 |
| #13 I'm not so sure we'll have to wait till 2010. 1. Once Bush is gone the trunks with objections will have much less reticence about speaking out. 2. Once a company's momentum goes in the tank, it's hard to turn around. One of the most ridiculous things I heard on the radio was, "Now that the auto execs have the money they'll have to demonstrate they can put it to good use." Gimme a break! Those guys have no power and no control over anything except deciding which creditors to pay and which to stiff. 3. More and more employees will lose benefits such as 401(k) match, if not their jobs. They're going to be asking themselves why their taxes should be going to support UAW workers and retirees making more than they do. 4. The amount of money GM will need in Q2 will be a shocker. 5. So Ford doesn't screw the pooch and they get nothing for it? A lot of taxpayers who have led a prudent financial life, and there are a lot of us, will be able to identify with that and there will be a lot of resentment amongst them. |
| Posted by: Nimble Spemble 2008-12-19 20:20 |
| #12 CF - understood, unfortunately the Donks won't be able to vote "present" on this one (like Teh One). Too many blue dogs have Toyota, Honda, et al, plants successfully operating and paying good, but not UAW, wages to have cover to vote for it. Could tear their party apart. I remain hopeful |
| Posted by: Frank G 2008-12-19 20:20 |
| #11 Frank - do you really think the Donks and MSM will _allow_ this to be blamed on The One? This will be blamed on the Evil Republicans for the next 2 Presidential elections no matter what the actual story is. Just look at the mortgage crisis - created and maintained by the Donks but successfully blamed on Bush - who is only too willing to take the blame and none of the credit. |
| Posted by: CrazyFool 2008-12-19 20:11 |
| #10 Agree with Frank. Let Bambi handle this one. Unfortunately it likely means giving the car companies and the UAW many billions so that the UAW can keep its benefits. That won't work but it won't become evident until 2010. September, 2010. Two months before the mid-term elections. |
| Posted by: Steve White 2008-12-19 19:37 |
| #9 OS, I don't regret my vote for Bush. Kerry would have been much worse. I regret not having a choice between a Statesman and a Weinerhead, but between the lesser of two Weinerheads. |
| Posted by: Deacon Blues 2008-12-19 19:35 |
| #8 the can got kicked down the road a few months = Obama's problem. Bush wasn't gonna solve it, and now O has to deal with the UAW issue with a Donk congress and re-election in 2010 for many. IMHO - a wise move to keep them alive long enuf to make it a Donk problem, otherwise it would be them eeeeevil Republicans vs the "downtrodden Dem-lovin-blue-collar workers of America" again, regardless of the facts. Note that Chrysler's workers will be getting 95% pay during their month off. Wish I could get that kinda plan |
| Posted by: Frank G 2008-12-19 17:57 |
| #7 Bush is a fecking IDIOT. I now regret my vote for the pinhead back in 04. Someone put something shiny in front of him and distract him so he toddles off and goes to screw up something LESS significant. Excepting his lucking into a win in the GWOT thanks to a good general, and his initial tax cuts, and a few other small items, he has been a gutless moron in his 2 terms. Not to mention it may be an illegal use of the TARP funds - I hope someone sues and gets an injunction to force GM and Chrysler into Bankruptcy. At that point the Govt can step in and provide DIP financing to see then through the restructuring. But 17 Bil and NO string attached for either the UAW or the execs? Gimme a break George you stupid sumbitch, STOP throwing good money after bad! |
| Posted by: OldSpook 2008-12-19 17:01 |
| #6 Have You Driven A Ford Lately? We're not bleeding you dry..... 1985 Ad... I only saw it once during the Daytona 500... |
| Posted by: .5MT 2008-12-19 16:53 |
| #5 I suspect that Alan over at FoMoCo can see the writing on the wall and while he may have a plan for bringing the blue oval back to life, he knows that the likelihood of doing it by the end of March is slim and he isn't ready to bet the company on the current terms. Of course I really do not think the gov't is conna call for their chips then, so the 3/31/09 deadline is just a place to begin the negotiations from. this is only my humble opinion, of course. |
| Posted by: USN, Ret. 2008-12-19 15:40 |
| #4 Yes ed. There's been a messy divorce between the economy and the Big 3+UAW. Like any divorce the proceeds are being divided up, but the UAW insists that it be maintained in a manner it has been accustomed to - upon the backs of other workers/taxpayers. This is no longer the dialect of class warfare of management exploiting the workers, this is now the warfare of the politicized workers exploiting the other workers/taxpayers. Under capitalism man exploits man. Under socialism the reverse is true, man exploits man. |
| Posted by: P2k on holiday 2008-12-19 15:24 |
| #3 Unfortunately the 3 magic letters are missing from is story - UAW. |
| Posted by: ed 2008-12-19 13:41 |
| #2 the administration decided against forcing a bankruptcy to compel cost-cutting, in order to avoid the risk that consumers would desert one or more of the companies and touch off an industry collapse I am missing the logic here. Car-buyers would shy away from a company in bankruptcy, but would still buy from one that's on a government loan, yet still has a dubious future? |
| Posted by: Milton Fandango 2008-12-19 13:40 |
| #1 "Strict non-binding goals"- thats a good one. |
| Posted by: Grunter 2008-12-19 13:11 |