Via About.com
In December 2008, the three major U.S. auto industry companies –GM, Chrysler and Ford — asked the government for a $34 billion bailout to avoid bankruptcy. The Big 3 stated that their demise would trigger 3 million layoffs within a year, plunging the economy further into recession.
In January 2009, the Federal government used $24.9 billion of the $700 billion bank bailout fund to rescue two of the Big 3 :
17.4 billion for General Motors and Chrysler.
$6 billion for GMAC.
$1.5 billion for Chrysler Financial.
The purpose of the loans was to provide operating cash for GM and Chrysler, and to keep making auto loans available for car buyers. Ford Credit planned to use funds from the Term Asset-Backed Securities Loan Facility (TALF),a government program for auto, student and other consumer loans.
Many opposed the bailout, saying U.S. automakers brought their near-bankruptcy on themselves by not retooling for an energy efficient era, reducing their competitiveness in the global market.
Auto Bailout Specifics
The auto bailout proposal from the Big 3 auto companies totaled $34 billion in government loans. In return, the companies promised to fast-track development of energy-efficient vehicles, and consolidate operations. GM and Ford agreed to streamline the number of brands they produced. They also won agreements from the UAW union to delay contributions to a health trust fund for retirees and reduce payments to laid-off workers. The three CEO's agreed to work for $1 a year and sell their corporate jets.
GM's Bailout
GM received $6 billion through GMAC, which became a bank holding company. GM asked for $18 billion in loans, of which $4 billion was needed to avoid bankruptcy before the end of 2008. In return, GM agreed to give the government warrants for common stock, preferred stock, and a promise to repay the loan in 2012, when it anticipates it will again break even. GM pledged to cut its debt by $30 billion by converting debt ownership for equity. It agreed that union health-care benefits would be paid to retirees in 2010. It promised to sell its Saab, Saturn and Hummer divisions, reducing the number of models for sale to 40. It would reduce employment from 96,000 to 45,000 by 2012. (Source: Bloomberg, Chrysler Financial to Get $1.5 Billion to Aid Car Sales, January 19, 2009)
Chrysler's $1.5 billion EESA loan was made to a new financing corporation, Chrysler Financial, set up for the purpose. The interest rate for the loans was 1 point above LIBOR. In addition, Chrysler Financial promised to pay the government $75 million in notes and reduce executive bonuses by 40%. As a result, car buyers will get 0% financing for five years on some models.(Source: Washington Post, U.S. Expands Aid to Auto Industry, January 19, 2009)
Chrysler received $4 of the $7 billion bridge loan it originally requested. It also asked for $6 billion from the Energy Department to retool for more energy efficient vehicles. In return, Chrysler's owner Cerberus vowed to convert its debt to equity. Chrysler wanted the Big 3 to partner with the Federal government in a joint venture to develop alternative energy vehicles. Chrysler pledged to debut an electric vehicle in 2010, ramping up to 500,000 by 2013.
Ford's Bailout Proposal
Ford requested a $9 billion line-of-credit from the government, and a $5 billion loan from the Energy Department. Ford pledged to accelerate development of both hybrid and battery-powered vehicles, retool plants to increase production of smaller cars, close dealerships, and sell Volvo. Ford is in better shape than GM or Chrysler because it had already mortgaged its assets in 2006 to raise $24.5 billion. Although Ford didn't need, and didn't receive any funds, it also didn't want its competition to get the upper hand thanks to the government bailout.
Congressional Plan
Congress first explored whether a planned bankruptcy reorganization was the best alternative for the companies, but realized that would take too long to implement. Congress was divided on whether to use the $700 billion EESA funds, instead of the $25 billion available from an Energy Department energy-efficient loan program.
Why the Bailout Was Needed
In December 2008, auto sales had dropped 37% compared to a year earlier. This was 400,000 fewer vehicles, or the equivalent of two factories' annual output. GM and Chrysler had the worst decline, while Ford's loss was about the same as industry leaders Honda and Toyota.
However, many in Congress accused the auto-makers of not operating competitively for years. The companies delayed making alternative energy vehicles, instead reaping profits from sales of SUV's and Hummers. When sales declined in 2006, they launched 0% financing plans to lure buyers. Union members were paid $70 per hour, on average, while new hires made $26 per hour. GM had twice as many brands as needed, and twice as many dealerships, thanks to state franchise regulations. For them, the bailout was needed to restore the U.S. auto industry to global competitiveness. (Source: WSJ.com, Big Three Seek $34 Billion Aid, December 3, 2008; Bloomberg, UAW Offers Cuts, December 3, 2008; The Economist, Back AgainDecember 3, 2008))
The Impact of the Big 3 Automakers on the U.S. Economy
At the time of the bailout, the auto industry contributed 3.6%, or $500 billion, to total U.S. GDP output. A 30% decline in auto sales translated directly into a 1% decrease in economic output. The auto industry also employed 850,000 workers in manufacturing, and 1.8 million workers in auto dealerships. Therefore, a decline in output resulted in direct job losses, as well as auto-industry related losses. (Source: BLS, Auto Industry Employment)
These figures included foreign-owned as well as the Big 3 auto makers. At the time of the bailout, many analysts felt that Chrysler would go bankrupt, even with a bailout, and Ford didn't really need it. Therefore, the main impact from the bailout was to save jobs at GM. However, the economic slowdown caused GM to slash its employment and production, whether it received a bailout or not. Furthermore, once the recession was over, Toyota and Honda would continue to increase their U.S. factories, providing jobs for U.S. auto workers
February 20, 2012
Dear Mitt Romney: As a native Michigander you should have known that the only one from the state who was allowed to be attributed to a quote about dying being a person or Detroit auto was the late Dr Kevorkian. Now that being said you also don't come across or have a history of wanting to throw something under the bus or your momma off the train like many of the liberals in Congress did with their collective souls down to their a-holes when getting Obamacare passed in order to 'find out what's in it'.
v
"General Motors and Chrysler did eventually enter bankruptcy,
and the headline was written by an editor, not by Mr. Romney. Yet more than three years later, the position he took still leaves many of his allies in the business world befuddled. " (Via NYT)
Mitt, so now that you have left many of you allies in the business world befuddled (NYT) it will be upto a real Conservative General to save the nation from Obamanation on what will be known as Conservative-Day (11.06.12).
BTW, our current Manufacturer In Chief did let half of GM die but no one seems to remember that aspect…
Dec 19, 2011
After 103 years of stratospheric heights and immeasurable lows, General Motors Corp. has died. Motors Liquidation Co., or "Old GM," as it became known during the 2009 bankruptcy reorganization, was quietly dissolved on Thursday, Dec. 15, taking the company's bad debts and liabilities along with it.
The dissolution leaves the newly formed General Motors. Co. to live on as the company's fitter and better-financed replacement. The latter, as you'll recall, benefited from a massive government bailout of nearly $50 billion and the ability to restructure contracts with its suppliers, dealership bodies and unions. The surprisingly expeditious reorganization saw GM shed its Hummer, Pontiac and Saturn nameplates, along with Swedish automaker Saab (whose own efforts to find footing as an independent automaker sputtered into bankruptcy earlier today).
Via Detnews
General Motors Corp., once America's largest corporation, died Thursday, Dec. 15, 2011. It was 103 years old.
The automaker faded into business history following a long and painful period, during which plants were forever closed, investors wiped out, 1,700 dealerships shuttered and tens of thousands of workers let go. The automaker was preceded in death by three of its brands: Pontiac, Hummer and Saturn. A fourth former brand, Saab, is in dire straits.
No one was there to mark the company's passing. Spokesman Tim Yost confirmed Friday that the company ceased to exist Thursday and was officially dissolved. Until The Detroit News contacted him Friday, no one had even inquired about its status.
On Friday morning, lawyers filed a court stipulation acknowledging the automaker's demise. U.S. Bankruptcy Judge Robert Gerber confirmed the company's liquidation plan in March, and set Dec. 15 as the deadline for it to go out of business.
Via NYT
February 19, 2012
After auto industry bailout, Detroit fallout trails Romney
As Congress and the White House scrambled in the fall of 2008 to confront the most severe economic crisis since the Great Depression, Mitt Romney felt compelled to say what many in his native Michigan would consider heresy: Do not bail out the troubled American automakers.
Government checks would not solve the car companies’ long-term problems, Mr. Romney wrote in an opinion article that he asked The New York Times to publish. The better path, he suggested, was a court-administered restructuring that would leave the companies with costs more in line with the global competition. The article carried the headline “Let Detroit Go Bankrupt,” which critics continue to use against him.
General Motors and Chrysler did eventually enter bankruptcy, and the headline was written by an editor, not by Mr. Romney. Yet more than three years later, the position he took still leaves many of his allies in the business world befuddled.
He’s playing the same song as Rush Limbaugh and Glenn Beck,” said Bob Lutz, a former vice chairman for General Motors who said he was still so upset with Mr. Romney that he had cast his absentee ballot in Michigan for Rick Santorum
- Mr. Romney has defended his 2008 plan, most prominently in an opinion article last week for The Detroit News, as essentially a blueprint for the path that Detroit ended up taking. “The course I recommended was eventually followed,” he wrote.
- His 2008 opinion article advocated a managed bankruptcy process, one that would help General Motors and Chrysler shed excess labor, pension and real
estate costs. He also called for profit-sharing with the unions and for the federal government to invest in new fuel economy technology.
- All of those things eventually happened, as Mr. Romney said. Chrysler went into Chapter 11 bankruptcy protection in April 2009. General Motors’ filing followed in June. But Mr. Romney’s detractors say his defense falls apart at “eventually.”
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In fact, the task force asked Bain Capital, the private equity company that Mr. Romney helped found, if it was interested in investing in General Motors’ European operations, according to one person with direct knowledge of the discussions.
