The $17.4 Billion Dollar Bailout

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The $17.4 billion Auto Bailout

GM and Chrysler get $17.4 Billion Bailout
Thesis: Some have even asked the question as to why is the Federal Government giving Gm and Chrysler a 17.4 Billion dollar bailout when so many people are losing their homes?

An emergency loan prevented bankruptcy for two Detroit automakers today, in a 17.4 billion dollar package given to General Motors and Chrysler, the Washington Post reported today.

The Post notes that this is only the beginning of a financial bailout for the troubled automakers, and required significant union concessions and promises of restructuring on the part of the corporations:

But while Bush demanded deep cuts in union wages and benefits and broad corporate restructuring as conditions for the loans, analysts say that the overhaul of the auto industry will require more negotiations, more time and more federal money. “The auto bailout saga does not end here,” Itay Michaeli, a Citigroup analyst, said in a report. The administration yesterday said it would give GM and Chrysler $13.4 billion immediately and another $4 billion in February if Congress approves and the companies meet targets for extracting concessions from unions and bondholders. The federal assistance will come from the $700 billion Troubled Asset Relief Program and could be exchanged later by the government for as much as a 20 percent stake in the companies. Ford has rejected such aid for the present.

The George W. Bush administration has granted GM and Chrysler a total of $17.4 billion bailout money. Ford stated that it does not need low0interes funds at this moment. The $17.4 billion relief fund will be split in two payments - $13.4 billion will come in December and January with a further $4 billion coming in February.

The money for GM and Chrysler will come from the Troubled Assets Relief Program (TARP). TARP is a $700 billion fund set up by the U.S. government just for these kind of situations, when an important company finds itself in trouble because of economic crisis.

President Bush said he took this decision because the U.S. economy can't manage the number of job lost in the case GM and Chrysler would file for bankruptcy. GM Press Release:

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 depends 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.

Chrysler Press Release:

Chrysler LLC Chairman and CEO Bob Nardelli said on behalf of the men and women of Chrysler and its extended enterprise, that he would like to thank the Administration and Treasury for their confidence in the Company.

”A letter of intent was signed which outlines the specific requirements that must be achieved,” said Nardelli. “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."

Nardelli said the Company would remain focused on its challenge and this initial...
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