Chrysler Bail Out Game

See how long you can keep Chrysler afloat.

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Bush Approves $17.4 Billion Auto Bailout, Canada to add $3.48 Billion (20%)

WASHINGTON — President Bush on Friday announced $13.4 billion in emergency loans to prevent the collapse of General Motors and Chrysler, and another $4 billion available for the hobbled automakers in February with the entire bailout conditioned on the companies undertaking sweeping reorganizations to show that they can return to profitability.

The loans, as G.M. and Chrysler teeter on the brink of insolvency, essentially throw the companies a lifeline from the taxpayers that will keep them afloat until March 31. At that point, the Obama administration will determine if the automakers are meeting the conditions of the loans and will continue to receive government aid or must repay the loans and face bankruptcy proceedings.

Mr. Bush made his announcement a week after Senate Republicans blocked legislation to aid the automakers that had been negotiated by the White House and Congressional Democrats, and the loan package announced by the president includes roughly the identical requirements in that bill, which had been approved by the House.

Mr. Bush, in a televised speech before the opening of the markets, said that under other circumstances he would have let the companies fail, as punishment for bad business decisions. But given the economic downturn, he said the government had no choice but to step in.

“These are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action” Mr. Bush said.

He said that bankruptcy was not a workable alternative. “Chapter 11 is unlikely to work for the American automakers at this time,” Mr. Bush said, noting that consumers would be unlikely to purchase cars from a bankrupt manufacturer.

The loan deal also requires the companies to quickly reduce their debt by two-thirds, mostly through debt-for-equity swaps, and to reach an agreement with the United Auto Workers union to cut wages and benefits so they are competitive with those of employees of foreign-based automakers working in the United States.

The debt reduction and the cuts in wages were central components of proposal by Senator Bob Corker, Republican of Tennessee, who tried to salvage the bailout legislation.

Those talks had deadlocked on a demand by Republicans that the wage cuts take effect by a set date in 2009, while the union had pressed for a deadline in 2011 after its current contract expires.

The plan announced on Friday by Mr. Bush offered a compromise between those positions, by making the requirements non-binding, allowing the automakers to reach different arrangements with the union, provided that they explain how those alternative plans will keep them on a path toward financial viability.

To gain access to the emergency loans, G.M. and Chrysler must agree to a range of concessions, including limits on executive pay and the elimination of their private corporate jets.

Under the plan, Mr. Bush essentially handed off to President-elect Barack Obama what will become one of the first, most difficult calls of his presidency: a political and economic judgment about whether G.M. and Chrysler are financially viable. Ford is not seeking immediate government help.

If, by March 30, the two companies cannot meet that standard — and clearly they could not meet it today — the $13.5 billion in Treasury loans would be “called” for immediate repayment, with the government placed in priority, ahead of all other creditors.

To avoid that fate, the companies will need to complete negotiations with the unions, the creditors, the suppliers and the dealers by March 30. Any judgment on the accords they reach with those groups will inevitably be both economic and political.

Mr. Obama and his economic team will have to make a convincing, public case that the wage cuts, plant closings and creditor agreements so change the landscape of the industry that the carmakers can turn profitable in short order.

But Mr. Obama will be under tremendous political pressure as well, because if his new team concludes that the automakers have not struck the right deals, it would mean a move to bankruptcy court, and likely widespread layoffs that would ripple far beyond the companies themselves.

Mr. Obama was elected partly with the enthusiastic support of the unions, who liked his talk of protecting jobs by renegotiating trade agreements. Now, in his first months, he will be asking them to give back gains they have negotiated over decades.

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http://www.nytimes.com/2008/12/20/business/20auto.html?_r=1&ref=business&pagewanted=print

Honda supports U.S. loan package

Honda has endorsed the American government's decision to provide the Detroit 3 with a $25 billion loan, describing the aid package as “totally proper” and important for the development of more fuel-efficient models.

According to the carmaker’s CEO Takeo Fukui, General Motors, Ford and Chrysler were all too slow to respond to the current fuel price crisis, and this is the reason why they are in such dire financial positions. His support for the American government's bailout plan also stems from the fact that Honda sources parts from many of the same manufacturers that these companies do, and if any of the Detroit 3 goes bankrupt there’s a strong chance that many of its suppliers could too.

While the Detroit 3 are all suffering from dropping sales, Honda’s numbers are expected to increase this year compared with the last. This is because sales in emerging markets such as China and India continue to increase despite the global economic downturn, reports The Detroit News.

Fukui also attributed Honda's success to its focus on high mileage models, and its decision not to "dabble" in the pickup truck segment. While the Detroit 3 built its customer base and bottom lines on the back of these lucrative truck sales, Honda's non-American markets were not so focused on these segments. Sales of its sedan models have proven so popular the carmaker is cutting back production on its Odyssey MPV and Pilot SUV in order to boost capacity for its Civic and Accord.

The carmaker’s next major sales boost is expected to come from a new generation of hybrid vehicles, including a production version of the Insight concept as well as hybrid sports car based on the CR-Z concept.

Source;
http://www.motorauthority.com/honda-supports-us-loan-package.html