GM and Chrysler Get Their Bailout: Will It Save Them?

By Jeff St. John

General Motors (GM) and Chrysler will get access to up to $17.4 billion in federal loans to keep their businesses afloat and push on with plans to build more fuel-efficient and electric-powered cars.

President Bush announced the deal Friday, one week after Congress narrowly failed to approve a similar plan meant to help the two giant U.S. automakers, as well as Ford (F), which isn't in as dire financial straits.

Under the plan Bush outlined Friday, GM and Chrysler will have until March 31 to restructure their businesses to remain viable.

The loans – $13.4 billion now and another $4 billion available in February – will come from the Troubled Asset Relief Program (TARP), the $700 billion fund set up by Congress earlier this year to aid the U.S. financial sector.

GM and Chrysler had told Congress they would build more high mileage and energy-efficient vehicles if they received federal assistance. But with sales plummeting and the two companies facing cash shortages, it had been unclear whether the two companies could keep their operations going, let alone follow through on those pledges (see Auto Bailout Dies; Will Green Pledges Follow Suit?).

GM, for example, plans to launch its hybrid Chevy Volt in 2010 and follow that up with half a dozen hybrid models by 2012 (see Chevy Volt Cleared for 2010 Production). But on Wednesday, GM said it had delayed construction on a $370 million factory where it planned to build the engine for the Chevy Volt and another fuel-efficient model, the Chevy Cruze.

GM thanked Bush for the bailout in a statement Friday and said it was "fully committed to leading in energy-saving vehicles and technologies."

Chrysler had promised a 2009 fleet with 73 percent more fuel-efficient vehicles from this year, as well as an electric-drive vehicle in 2010 (see Chrysler Eyes 2010 for Launch of One of Three Electric Cars). But the automaker said this week that it would shut down all of its 30 plants for at least a month starting today to conserve cash. GM and Ford have also announced extended year-end plant shutdowns.

Ford is not in as dire financial straits as Chrysler and GM, but lobbied for the bailout to prevent a failure of the other two automakers from disrupting the industry.

Ford wants to release an electric van in 2010 and an electric sedan in 2011 for fleet customers, as well as more hybrids and all-electric cars for consumers in 2012 (see Ford Outlines Fuel Economy, Electric Car Plans to Feds). The company plans to spend about $14 billion in the next seven years to develop advanced technologies and products to improve fuel efficiency.

U.S. sales for the Big Three have been dismal this year, as the collapsing housing market, resulting credit crunch and turmoil on Wall Street have led the U.S economy into recession. GM is down 22 percent, Ford down 19 percent and Chrysler down 28 percent, compared with an industry-wide average sales drop of 16 percent, Bloomberg reported.

Bush's plan comes with demands that the Big Three restructure their finances, reduce their debt by two-thirds and reduce their unionized workers' wages to more closely match those of workers at foreign-owned auto plants in the United States.

Comments

[John D:]

I'm quite sure that the UAW & CAW must both realize now that they are no longer barganing with the companies but with the government and that they will have to reconsider some of the points of the contracts that were hard fought for. The only way you can look at it right now is that it would be better to give up on certain items such as wage reductions, some benefits in order to keep a job rather than fight the government and not have a job. Perhaps now would be a good time to negotiate with the government to take another look at FREE trade and push for EQUAL trade so that the Asian car companies can't keep DUMPING cars here unless we are allowed the same numbers in those countries, one for one or invoke a tarriff on all those over the limit (2007 the Koreans shipped 750,000 vehicles in North America - we shipped 5000 to them in return) - this would put things on a level playing field and also contribute to turn the North American auto sector to a profitable, viable business once again.These are most definately trying times and cooler heads will hopefully prevail.

2008 Dec 21 03:03 PM

[alcsitton:]

Wages and benefits of UAW workers are on par with transplants. Legacy costs are the difference. One million retired workers for U.S. companies. How many for transplant companies in the U.S.? Not many. Transplant workers already get the same deal.

2008 Dec 21 04:14 PM

[tenny121:]

How about the government give Americans the TARP money to buy American cars and they can use the profits to make the changes they need to be competetive lol

2008 Dec 21 05:58 PM

[Teutonic Kn...:]

User 323831:

This is a great idea, and I believe a somewhat different version was advocated elsewhere. Unfortunately, in my humble opinion, the chances of the government adopting this route is near zero.

For two reasons: One, if the government chooses to do this it would literally mean to bypass the banks. For centuries in the Western world since banking and lending were first established, the banking institution had b


On Dec 21 05:58 PM User 323831 wrote:

> How about the government give Americans the TARP money to buy American
> cars and they can use the profits to make the changes they need to
> be competetive lol

2008 Dec 21 06:21 PM

[Teutonic Kn...:]

(cont'd) een institutionalized as part of the government's arm, if you will. In Great Britain, they often receive their Royal Charters. To lend directly to the consumer would then mean to bypass the middle man, cutting off them livelihood -- a No-No flor the rulers.

Secondly, setting up a shop to manage such lending would be difficult if not impossible to implement and to manage continuously after such sales. Would you imagine another government agency set up to do just this? Or, another contractor? Well if you would recall the horrifying stories with Hurricane Katrina where thousands over-claimed living expenses by the Billion dollars, and the corrupt oil and private security contractors who charged ludicrous and criminal prices during the Iragi War (which by the way is still ongoing at this writing).

And so I submit that while the intent of this idea is excellent, the practicality of it is doubtful at best.


On Dec 21 06:21 PM Teutonic Knight wrote:

> User 323831:
>
> This is a great idea, and I believe a somewhat different version
> was advocated elsewhere. Unfortunately, in my humble opinion, the
> chances of the government adopting this route is near zero.
>
> For two reasons: One, if the government chooses to do this it would
> literally mean to bypass the banks. For centuries in the Western
> world since banking and lending were first established, the banking
> institution had b

2008 Dec 21 06:29 PM

[Schadenfreude:]

You really have to be kidding. do you leave your house? dumping what?
paychecks in the hands of american workers? why dont you swallow your domestic car b.s. and go work for a COMPETENT and PROFITABLE company.
toyota has factories here, you dope. their stock is still worth somthing.
go online and use google, and try "toyota factories in the US" or any of the companies you accuse of "dumping". honda? hyundai?
moron. i really hope you lose the ability to type.

On Dec 21 03:03 PM John D wrote:

> I'm quite sure that the UAW & CAW must both realize now that
> they are no longer barganing with the companies but with the government
> and that they will have to reconsider some of the points of the contracts
> that were hard fought for. The only way you can look at it right
> now is that it would be better to give up on certain items such as
> wage reductions, some benefits in order to keep a job rather than
> fight the government and not have a job. Perhaps now would be a good
> time to negotiate with the government to take another look at FREE
> trade and push for EQUAL trade so that the Asian car companies can't
> keep DUMPING cars here unless we are allowed the same numbers in
> those countries, one for one or invoke a tarriff on all those over
> the limit (2007 the Koreans shipped 750,000 vehicles in North America
> - we shipped 5000 to them in return) - this would put things on a
> level playing field and also contribute to turn the North American
> auto sector to a profitable, viable business once again.These are
> most definately trying times and cooler heads will hopefully prevail.

2008 Dec 21 07:13 PM

[303820:]

Schadenfreude...First of all the toyotas were invited here to bust the unions...by the anti-union called RONALD REGAN...second if the economy doesn't pik-up toyota will be asking for help here in usa soon ...they are asking help in europe...they only have 46 billion in cash and burning it fast...remember gm had 30 billion 6 months ago.
Profitable? only because they don't have legacy cost ...they pay 30%of their workers $12/hr and no benefits... called temps.
they allready got their bail out"the real one" they don't have to pay it back...tax subsidies given to them by the RICHARD SHELBYS OR THE SO CALLED...TOYOTA REPUBLICANS.
50% of what they sell in usa is imported from japan or korea...same for the kias and hondas...
We allow them to sell in usa at no cost to them while their governments impose stiff tariffs on our cars in their countries...that called dumping.

2008 Dec 21 09:19 PM

[303820:]

SCHADEN..,does our government take care of it's workers health care or pensions? the answer is no!
Do the toyotas take care of workers health care and pensions? the answer is no!
the Detroit auto companies together with UAW take care of their workers...is that wrong?
This is USA they should be competing with us...not us with them.

2008 Dec 21 09:28 PM

[andy b:]

"But the automaker said this week that it would shut down all of its 30 plants for at least a month starting today to conserve cash. GM and Ford have also announced extended year-end plant shutdowns."

Wanna bet these plants won't be opening back up once they're closed?

2008 Dec 22 01:26 AM

[cynnatalie2000:]

Chrysler is inferior to GM or Ford and detroit's image would improve if Chrysler is closed down.

2008 Dec 22 02:22 AM

[oilcan821:]

i hope the new volt doesn't have a "shocking" sticker price! even the uaw workers won't be able to afford a $50,000 car that goes about 100 miles on a charge! maybe if the "sen. shelby-mcconnell" brands were taxed the same as gm&chrysler, they'd be asking for the "bridge loans" to keep them going! we should cut off all tax abatements for all the transplants! everyone forgets the bidding wars the foreign nameplates used to screw their way into the communities they're in! gimme and they'll come!!!

2008 Dec 22 09:46 AM

[fran:]

GM was planning to spend $350+million for a new facility when they need to close half their production facilities due to under-utilizatioin. on a product line yet to be successful in the market place. and they need a bailout?

2008 Dec 22 01:12 PM