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The White House approved funds early Friday to help ailing automakers Chrysler and GM, which will keep the companies stable through at least the first quarter of 2009.
The $13.4 billion in Treasury loans was announced by the White House, with an additional $4 billion likely available in February, according to news reports. "We know we have much work in front of us to accomplish our plan," GM said in a prepared statement. "It is our intention to continue to be transparent as we execute our plan, and we will provide regular updates on our progress."
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 injection of working capital would help bridge the liquidity crisis the industry is facing and assist in helping return Chrysler to profitability.
As anticipated, the money will come from the the Troubled Asset Relief Program (TARP), set up to help the financial industry last September. Ford will not be taking any loans at this time.
The automakers had predicted they would be out of money by early 2009 without the loan package, and Pres. Bush agreed with the companies that the current economic climate is too precarious to risk a Chapter 11 bankruptcy.
The loan does have strings attached. The carmakers will need to prove themselves solvent, or else they could be forced to repay the loans or face bankruptcy at the end of March.
The deal also requires the companies to quickly reduce their debt obligations 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, according to the New York Times.
Before news of the loans was announced, GM, Ford and Chrysler began another round of cuts, spurred by sales declines this year of 22 percent, 19 percent and 28 percent, respectively, compared with the 16 percent industrywide average.
Chrysler announced it would shut all 30 of its stateside plants for at least a month starting Dec. 19, and Ford plans to idle nine of 15 North American assembly plants in the first week of January.
