The Bush Administration will make $13.4 billion from the TARP funds available to U.S. automakers to keep them afloat for a few more months. The automakers will have until March 31st, 2009 to prove they are a viable company and will be able to operate profitably.
This loan uses most of the rest of the first $350 billion appropriated by Congress. If Congress approves the use of the last $350 billion, the automakers can borrow an additional $4 billion.
The loans are for 3 years but will have to be repaid within 30 days if they don't prove their viability by March 31st.
GM thanked the administration for the loans and looked forward to showing what American ingenuity can achieve.
The terms of the loan are similar to what was approved in the House but shot down in the Senate. The automakers must limit compensation and eliminate perks. They also must issue warrants, which convert to non-voting stock, to the government.
The terms don't include a car czar, but does say a government designee will determine if the automakers are making changes that will make them viable. It is expected that Treasury Secretary Henry Paulson will fill this role.
Details of the automakers plans must be submitted to the government by February 17th. The government wants the automakers to reduce their debt by two thirds via a debt to equity exchange with current bondholders and get the Unions to agree to wages and work rules competitive with non-union plants operated by Asian companies by the end of next year.
The government is also requiring GM and Chrysler to use their stock to pay for half of the future retiree health care expenses, which will be paid by union controlled trust funds rather than the automakers themselves, starting in 2010.
There is flexibility in the terms that allow automakers to hold the loans even if they don't meet the targets, if they can explain why they are still viable.
Automakers recently announced plant shutdowns that will last weeks longer then is typical for this time of year.