To survive GM and Chrysler Will Get $13.4 Billion in U.S. Loans

The fall economy of US is showing the mystery of US history ,To survive against the fallen economy the US govt initiated to support General Motors Corp. and Chrysler LLC .
General Motors Corp. and Chrysler LLC will get $13.4 billion in initial government loans to keep operating in exchange for a restructuring under a rescue plan that President George W. Bush will announce this morning.
The money will be drawn from the Troubled Asset Relief Program and the automakers will get an additional $4 billion from the fund in February for a total of $17.4 billion in assistance, according to a statement from the Bush administration. The money would allow GM and Chrysler to keep operating until March.
Under the terms of the plan, if the companies can’t demonstrate financial viability by March 31 the loans will be called and the money must be returned, the statement said. The government’s debt would have priority over any other debts. The companies also must provide the government with warrants for non-voting stock.
The companies also must accept limits on executive compensation and management and labor must negotiate new wage and benefit agreements by the deadline, according to an administration official who briefed reporters on the plan.
Government officials will examine all financial statements and records of the car companies. The government has the authority to block any transaction over $100 million.
The package is intended for GM and Chrysler initially; Ford Motor Co. has said it can continue operations under current circumstances.
Bush is scheduled to announce the plan at 9 a.m. Washington time from the White House.

Previous related post http://businesstension.blogspot.com/2008/12/us-economy-car-market-frastation-just.html

US Economy : Car Market Frastation just BAD TIME

GM, Chrysler Shutter Factories, Await Bush Decision
NOT BAD ITS JUST WORST,THE US ECONOMY IS POSSED IN THE POSITION THAT THE BIG INDUSTRY CANNOT RUN FURTHER.....SEEMS SO

Struggling U.S. automakers are launching a round of severe cutbacks as they wait for a government rescue, with Chrysler saying yesterday it will idle all 30 of its U.S. factories for one month.

General Motors Corp., Ford Motor Co. and Chrysler LLC will shutter about 59 factories over the next month as they struggle to adapt to the worst sales in 26 years and await a verdict on a U.S. rescue of the industry.

The closings show how far automakers are going to conserve cash and prune output under the pressures of a shrinking U.S. market, dwindling access to credit for dealers and demands for advance payments by some GM and Chrysler parts suppliers.

“No one is immune,” said Ed Kim, director of industry analysis for consulting firm AutoPacific Inc. in Tustin, California. The industry is “imploding to a degree I’ve never imagined could happen, and at a speed I’d never expected.”

GM, the biggest U.S. automaker, and No. 3 Chrysler are counting on President George W. Bush to approve emergency loans to help them stave off a collapse that would threaten millions of jobs. Without $14 billion in federal aid, the manufacturers will be out of money by early 2009, they say.

Bush told Fox News Channel yesterday he was still “thinking through” details of any government assistance. Congress deadlocked on a bailout last week, spurring the White House to reverse its stance and consider tapping money from the $700 billion bank-bailout fund.

Closing Plants

GM, Ford and Chrysler began another round of pullbacks yesterday, burdened by U.S. sales declines this year of 22 percent, 19 percent and 28 percent, respectively, compared with the 16 percent industrywide average.

Chrysler will shut all 30 of its 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.

Ford said its move was part of a previously announced plan to reduce first-quarter North American production by 38 percent. The second-biggest U.S. automaker acted after Detroit-based GM’s Dec. 12 decision to cut 250,000 units of production from its first-quarter North American plans, affecting 20 plants. That was equal to almost 30 percent of GM’s 2008 first-quarter sales.

GM said yesterday that a new $370 million factory making engines for the Chevrolet Volt electric car is being delayed to conserve cash.

‘Bad Times’

“You need to have a hoard of cash built up from the good times to get you through the bad times,” said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. “The bad times are here, the bad sales are here and GM and Chrysler just don’t have the cash.”

GM, which reported having $16.2 billion as of Sept. 30, needs at least $11 billion to pay monthly bills. Chrysler ended last quarter with $6.1 billion and needs at least $3 billion to operate, Chief Executive Officer Robert Nardelli told Congress on Nov. 18. Ford has said it doesn’t need emergency aid.

The Wall Street Journal said yesterday that Chrysler owner Cerberus Capital Management LP reopened talks on a GM merger. GM spokesman Tony Cervone said the company isn’t in negotiations and hadn’t altered its Nov. 7 position to end discussions on a “strategic acquisition” while it seeks government loans.

GM fell 10 cents to $4.27 at 9:41 a.m. in New York Stock Exchange composite trading, while Ford slid 5 cents to $3.09. GM’s 82 percent plunge this year through yesterday is the most among the 30 stocks in the Dow Jones Industrial Average. Dearborn, Michigan-based Ford was down 53 percent.

Lending Shutoff

Chrysler Financial, the automaker’s credit arm, said it may temporarily halt the loans used by dealers to buy vehicles as the retailers drain $60 million a day from the account that helps finance their borrowing.

GM is awaiting the results of lender GMAC LLC’s bid to convert to a bank through a debt swap in order to tap the Troubled Asset Relief Program, the bailout fund that Bush may now use for the automakers. Detroit-based GMAC provides financing for about 75 percent of GM’s inventory.

GM and Auburn Hills, Michigan-based Chrysler both have been pressed by a small number of suppliers for cash payments for parts on concern that the automakers might file for bankruptcy, people familiar with the matter said last week.

The Pontiac division at GM may be pared to a single model from six following a drop in sales every year since 1999, Mark LaNeve, North American sales chief, said in an interview.

North American output for Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan’s three biggest automakers, is being reduced, too, down more than 300,000 units from a year earlier. All three have announced cuts to scheduled production.

Toyota stopped assembly work at its San Antonio pickup truck plant for 15 weeks this year because of rising inventory and this week, it indefinitely halted construction of a Mississippi plant that was to produce Prius hybrids by 2010.

“When you’ve got the economy in the situation that it is now, it’s not just the Big 3’s customers that are affected,” said AutoPacific’s Kim. “It’s everyone’s customers. It is all interconnected.”

To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net; Greg Bensinger in New York at

A series of initiatives to combat the financial crisis by Obama

The Bush administration came under renewed pressure from fellow Republicans who urged the government extract stiffer concessions from labor and other groups than Democrats and the White House previously agreed were needed to qualify for aid.

The incoming Obama administration is considering a series of initiatives to combat the financial crisis, including some efforts to help banks that the Bush administration has tried with limited success.

On Tuesday, members of President-elect Barack Obama's economic team briefed Mr. Obama on ways to address the financial crisis and also on plans for an economic-stimulus package.
While Treasury Secretary Henry Paulson has seized on equity investments in banks as Treasury's primary mechanism to help resolve the financial crisis, the Obama team is developing a broader approach that would likely incorporate multiple remedies.
The new administration is "trying to put components together that...will be complementary...while recognizing there's no easy answer," said a person familiar with its plans.
The Obama team, hoping to avoid the criticism leveled at Mr. Paulson by lawmakers that he lacks a consistent strategy, is also working to come up with a way to cogently explain the rationale behind its approach.
One key distinction will be in the approach to helping homeowners facing foreclosure. Mr. Paulson and the White House have resisted calls to embark on a government rescue of homeowners. The Obama team, by contrast, sees that as a critical leg of its financial-crisis rescue plan, people familiar with the matter said.
Democratic lawmakers are pushing for Mr. Obama to take steps quickly to help at-risk borrowers. Details of the Obama foreclosure plan aren't known, in part because they are still being hashed out.
In a fresh sign of the magnitude of the financial crisis, the Federal Deposit Insurance Corp. braced for more bloodletting in the U.S. banking industry. The five-member board of the FDIC, which is in charge of unwinding failed banks, voted Tuesday to increase the agency's 2009 budget to $2.24 billion, an increase of $1 billion, compared with 2008, and said it planned to beef up its bank-examination and supervisory staff by more than 500 to 6,269. It would pay for the increase by levying higher fees on banks.

While it is unclear exactly what the Obama financial rescue will look like, it is expected to continue Mr. Paulson's attempts at addressing the lack of capital at financial institutions. That could mean additional equity injections, as well as an effort to have the government boost the value of troubled assets, such as mortgage-backed securities.
"We are looking at a number of initiatives that will allow us to move aggressively and responsibly to address the economic and financial crisis both on Wall Street and Main Street, including programs to provide targeted foreclosure relief," said Stephanie Cutter, an Obama spokeswoman.
Mr. Paulson initially planned to help financial institutions by purchasing troubled assets through the $700 billion Troubled Asset Relief Program approved by Congress in October. Banks are struggling with a glut of those assets, which continue to fall in price, forcing the banks to write down the losses and take a financial hit.
But Mr. Paulson jettisoned that idea in favor of taking $250 billion of equity stakes in banks, arguing that was a quicker and more effective way to encourage banks to lend money to consumers, businesses and each other. However, the credit crisis has continued despite Treasury's efforts, prompting criticism from lawmakers and Wall Street.
On Tuesday, Mr. Paulson acknowledged that banks aren't lending enough money despite the government infusion, but said the U.S. didn't want to nationalize the industry and dictate the loans banks make.
Much of the Obama team's financial rescue package likely won't be known until the new administration takes office next month. Some of it depends on whether Mr. Paulson seeks the second half of the promised $700 billion. Treasury's initial $350 billion batch is rapidly dwindling and could be further drained by aid to struggling U.S. auto makers.
Lawmakers have made it clear that if Treasury wants to get the next tranche, it will need to come up with a foreclosure-mitigation plan and enact stricter requirements on banks that get government funds. Mr. Paulson has said he wants the Obama team to support any new programs, but the Obama team has yet to engage with Treasury on current efforts.
Mr. Paulson, in an interview with CNBC on Tuesday, said the government had enough "firepower," and suggested he had no current plans to tap the second tranche.
Some lawmakers want Mr. Paulson to request the funds. House Financial Services Chairman Barney Frank (D., Mass.) said he has told the Obama team it should work with Mr. Paulson to request the second $350 billion and embark quickly on a foreclosure-prevention plan.
"My hope is for them to agree with Paulson that he should request the second $350 billion as soon as we [Congress] reconvene," Mr. Frank said in an interview.