GM and Chrysler will receive 13.4 billion U.S dollars appropriated from the Paulson plan now, and a second 4 billion dollars in February, subject to its release by the Congress, but they have three months to become viable again.
The American car manufacturers are going to receive 13.4 billion dollars of Paulson funds of support to the financial system (TARP), announced Friday at the White House. These sums would benefit General Motors and Chrysler, clarified a senior official of the American administration.
A second 4 billion dollars will be put at the disposal of the manufacturers in February, subject to second part of the capital of the Paulson plan to be released by the Congress, the White House specified.
“The companies have to use this capital to become viable financially,” according to the American executive. If these firms do prove their viability by March 31st, 2009, they will have to pay back the Treasury all the funds that were advanced to them.
According to the White House, the beneficiaries will be considered viable if they can show a positive net value of assets, by including all present and future costs, and if they are capable of paying off completely the governmental support. The American Treasury afterward clarified that GM and Chrysler will release a minimum of 5 % of interest on these loans, the repayment of which must be finished by December 29th, 2011.
No specific help is envisaged in this plan for the automobile financing companies, clarified the spokesperson.
The conditions put in the payment of the helps include those already envisaged during the discussions at the Congress: allocation of warrants allowing the American state to obtain preferential shares, limitation of the bonuses to executives and elimination of certain fringe benefits, such as the use of private jets, the power given to the government to block the transactions above that of 100 million dollars, ban on the payment of dividends as long as companies will be a debtor of the State.
But the Treasury, which will manage this program, added supplementary conditions:
– Reduction of the two thirds of the debts by a conversion of the debt in capital.
– Financing the funds of social welfare of the pensioners in the form of shares.
– Elimination of the arrangement which allows technically unemployed workers to receive their salaries.
– Setting up agreements with companies which will allow carmakers to be competitive with the American factories of foreign manufacturers before December 31st, 2009.
– Adjustment of salaries on those practiced by the American factories of the foreign
manufacturers before December 31st, 2009.
The White House underlines that these conditions, with an extreme rigor, are not engraved in stone: “the negotiations can deviate from these quantitative objectives although the company explains the reasons of these distances and justifies that it can reach a long-term viability in spite of this abnormality ” with regard to the fixed conditions.
The beneficiaries will also have to sign new agreements with their business partners, dealers and equipment manufacturers before March 31st.
These conditions and this very short period should push General Motors and Chrysler towards the most drastic measures; manufacturers transfer as Saab for example and severe plans of restructuring.
The idea of a merger between both “patients” of Detroit was recently contradicted by GM, in spite of recurring rumors.
No matter what, they are going bankrupt. Only a matter of how much money they take with them.