The Bush administration announced today that they will use TARP funds to provide loans to GM and Chrysler (via WSJ):
The deal would extend $13.4 billion in loans to General Motors Corp. and Chrysler LLC in December and January, with another $4 billion likely available in February. It also would provide the government with non-voting warrants, although the exact amount was unclear immediately. Ford Motor Co. has said it doesn’t need short-term assistance.
In an interview Tuesday, Bush applied Ben Tre logic to justify the various bailouts of his administration:
“I’ve abandoned free-market principles to save the free-market system,” Bush told CNN television, saying he had made the decision “to make sure the economy doesn’t collapse.”
I think one has to have something before it can be abandoned. Bush hasn’t shown anything other than lip service to free markets since he was elected.
The GM/Chrysler bailout has some allegedly tough terms attached:
The deal is contingent on the companies’ showing that they are financially viable by March 31. If they aren’t, the loans will be called and all funds must be returned, officials said.
The deal generally tracks key provisions of the bailout legislation that nearly passed Congress earlier this month. But it is relatively lenient in allowing the companies to show their viability. It defines viability as having a positive net present value — a way of gauging the companies’ worth, taking into account all their future obligations.
Notably, it provides significant flexibility to the companies in showing their viability. It sets out targets for the companies to hit in determining their financial health, such as reducing debt and current cash payments for future health care obligations.
But according to a White House fact sheet, the targets “would be non-binding in the sense that negotiations can deviate from the quantitative targets…providing that the [company] reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.”
Yep, those are some tough terms. One question though: if GM is in danger of running out of money before the end of the year, where would they get the money to pay us back on March 31st if they don’t meet the government non binding targets regarding viability? Will we all get a new Chevy Malibu?
Where exactly do Bush and Paulson get the authority to lend our money to GM and Chrysler? I was just reading through this handy dandy on line US Consitution and I can’t find anything in there about the government having the authority to lend money to private companies. Congress rejected the loans when the Senate failed to gain cloture on the bill. I can’t find anything in the TARP legislation about lending to companies of any type much less automobile companies. And the public is opposed.
Prediction: This won’t be enough to save GM and Chrysler. They will ask for more money from the new Obama administration – and they’ll get it. And Obama will at least consider import restrictions or tariffs on foreign autos sometime next year.