White House Releases Auto Bailout Plan

By: Kevin Hechtkopf
Topics: Economy

President Bush will soon announce his plan to rescue the automakers with an immediate $13.4 billion loan (with $4 billion more available in February), but here's a sneak peak of the plan, as released by the White House:

Purpose: The terms and conditions of the financing provided by the Treasury Department will facilitate restructuring of our domestic auto industry, prevent disorderly bankruptcies during a time of economic difficulty, and protect the taxpayer by ensuring that only financially viable firms receive financing.

Amount: Auto manufacturers will be provided with $13.4 B in short-term financing from the TARP, with an additional $4 B available in February, contingent upon drawing down the second tranche of TARP funds.

Viability Requirement: The firms must use these funds to become financially viable. Taxpayers will not be asked to provide financing for firms that do not become viable. If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.

Definition of Viability: A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.

Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:

Firms must provide warrants for non-voting stock.
Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
Debt owed to the government would be senior to other debts, to the extent permitted by law.
Firms must allow the government to examine their books and records.
Firms must report and the government has the power to block any large transactions (> $100 M).
Firms must comply with applicable Federal fuel efficiency and emissions requirements.
Firms must not issue new dividends while they owe government debt.

Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:

Reduce debts by 2/3 via a debt for equity exchange.
Make one-half of VEBA payments in the form of stock.
Eliminate the jobs bank.
Work rules that are competitive with transplant auto manufacturers by 12/31/09.
Wages that are competitive with those of transplant auto manufacturers by 12/31/09.

These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.

In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009.

Update 9:20 a.m ET: Read more on the plan and what Mr. Bush said.

Kevin Hechtkopf
Kevin Hechtkopf is CBSNews.com's politics editor.
Follow on Twitter »

8 Comments Have Your Say
Email Story Send to a Friend
Share This Tell Your Friends
Tweet This Tweet This
More Share It

Add a Comment


by lovegetpeace December 19, 2008 4:13 PM EST: Socialism is always kind and compassionate with Capitalism. Socialism got a Big Heart which is lacking in Capitalism.

Bush just nationalized the U.S. Auto Industry. The Republican Congress lost period.

This is just another big black eye for Capitalism. What a joke!

Viva La Socialismo around the World!; Reply to this comment


by usgeneral-2009 December 19, 2008 3:57 PM EST: Christmas comes to Detroit: THE AUTO EXEC WILL NOW CERTAINLY GET THEIR LAVISH BONUSES THIS YEAR.

Do you feel that pain, taxpayers? That''s your Christmas gift from the politicians: a nice, big shinny SHAFT.

/; Reply to this comment


by tiktin December 19, 2008 2:54 PM EST: Let me get this straight. "Only financially viable firms will get a bailout"? If Ford, Chrysler and GM are financially viable, why do they need a bailout? "If the firms are not financially liable by March 31, they will have to repay the loan" What with? How can they repay the loan if they''re broke? "The government will get non-voting stock" Would you take Ford, GM or Chrysler stock as security for a loan? And why "non-voting"? So the government can''t interfere in business as usual? What a farce!; Reply to this comment


by docpeter1953 December 19, 2008 2:37 PM EST: From the above article, ''These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.''
_________________

Deviations:

1. CEOs are not getting bonuses, however they are getting retention bonuses.
2. UAW workers will get a reduction in base pay on 12/31/2008, there is no need to reduce their pay right now because they may not have a job after 2009.
3. Transplant automakers did not help us so our profits were not as great as they should have been so our payback will be a little low for March 31, 2009, but we are certain that Treasury will not mind.
4. Our books are cooking, please wait until the roast is done before you come and taste it.; Reply to this comment


by jsd330 December 19, 2008 2:36 PM EST: Then maybe all those other people who are being laid off need to take a pay cut to.And beleive me if it is starting with the auto industry, it''s going to roll down to every other industry. How come the workers in the banking industry were never asked to take a pay cut, to secure the bailout?
Makes you wonder doesn''t it. Executives no strings attached, workers it''s all on your back.; Reply to this comment


by antoniof123 December 19, 2008 2:31 PM EST: Notice that "wages" will be affected, but not "bonuses".

They''''ll make sure to protect the CEOs and upper management, I''''m sure.

Posted by perk235 at 11:10 AM : Dec 19, 2008

Agreeed and that is going to be their downfall. The right wing hasn''t figured it out yet they blame the workers when the ultra rich destroy the company.

It is funny but the Republicans are saying that making less is good but for who.

Looks like another blood bath is forming for them in 2010.; Reply to this comment


by perk235 December 19, 2008 2:10 PM EST: Notice that "wages" will be affected, but not "bonuses".

They''ll make sure to protect the CEOs and upper management, I''m sure.; Reply to this comment


by ibogans December 19, 2008 1:28 PM EST: it want do any good. people are out of jobs everywhere. just like it want do any good to lower interest rates. that will ony help the high class. people will hold on to there money as long as they are out of jobs, and business continue to lay off or close. the brain heads that think they are so smart, aren''t so smart anymore to fool the low class people. you just don''t get it. the auto makers and the banks aren''t the only people in business. as it stand right now, people are embracing to see when they will be layed off or the company they work for closes.

u have hospital, woodworking, plumbing, janitors, shopping malls, electronics, and many more that are laying off or closing that have more people working for them than the auto industry or wall street in the us.; Reply to this comment