Detriot Automakers Get $17.4 Billion In TARP Loans, Preventng Bankruptcy

Washington, D.C. - President Bush said Friday that the government will assist the struggling automakers, General Motors Corp. (NYSE: GM) and Chrysler LLC, to restructure their businesses and to stave off bankruptcy while they develop plans for viability.

"The financial crisis brought the auto companies to the brink of bankruptcy much faster than they could have anticipated," Bush said in a statement on Friday.

He continued, "They have not made the legal and financial preparations necessary to carry out an orderly bankruptcy proceeding that could lead to a successful restructuring."

The two of the three big automakers will receive a total of $17.4 billion in loan, including $13.4 billion in emergency loans and a $4 billion fund to be alloted in February.

Under the first allocation, GM will receive $9.4 billion from the federal loan money, while Chrysler would get the other $4 billion. Ford does not require any government funding for now.

The funds will be available from the $700 billion Troubled Asset Relief Program, which was initially established to support the distressed financial companies suffered by the financial crisis.

The companies will have to come up with a viable restructuring plan by March 31st. If they fail, they it will be required to repay its federal loans.

The troubled auto industry gets a nod from the House of Representatives to receive $14 billion in bailout, but it not pass through the Senate as the Republicans opposed terming it as a 'weak' auto bill.

General Motors, Ford Motor, and Chrysler LLC have been discussing with their lenders, auto-part suppliers and the United Auto Workers union members to gain more time and concessions to dampen their losses.

Under the term, the automakers have to meet conditions that are necessary for long-term viability, Bush said today.

The automakers would require to put their retirement plans on a sustainable footing, persuade bondholders to convert their debt into capital the companies need to address immediate financial shortfalls, and make their compensation competitive with foreign automakers who have major operations in the U.S.

Ford has decided to avoid accepting funds from the latest bill as it has some cash in reserve to help the company survive over the next few months. The automaker has indicated in the past that it may ask for a $9-billion credit line.

GM's cash, and other assets amounted to $16.2 billion on September 30, 2008, down from $21.0 billion it had reported as of June 30, 2008, reflecting negative adjusted operating cash flow of $6.9 billion in the third quarter 2008.

"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 depend on us," GM said in a statement, commenting on the Bush administration's step to extend the financial bridge to the company.

GM was trading higher by 42 cents or 11.48 percent to $4.08 and Ford was moving higher by $0.03 or 1.06 percent to $2.87 in afternoon trading on the New York Stock Exchange on Friday.