The White House announced that General Motors and Chrysler will be receiving $17.4 billion in loans in order to stay afloat. It was decided that the auto makers would not have to file bankruptcy which was at one time thought to be a provision of the loans.
What the automakers will have to do is show viability by March 31st. If they cannot prove that then the loans can be called (in other words the government could take the money back). I’m guessing that if the companies don’t show viability it would put them into bankruptcy?
The definition of viability is pretty broad though. They would have to show “positive net present value.” This would be determined by the next administration. One thing the companies will also have to do is reach new agreements with major stockholders, vendors, and suppliers in an effort to cut costs.
By not forcing a bankruptcy the White House shows confidence in the auto makers ability to turn things around and helps sustain confidence in related companies who deal with the automakers. A bankruptcy could have caused consumers, suppliers, and vendors to abandon GM and Chrysler.
So they have their loans for a few months. It will be interesting to see what they do now to present themselves as companies that can make money in the future. I wouldn’t be surprised to see Chrysler still merge with another company.
I have to admit I’m a bit torn on this. the company I work for does business with one of the auto makers so obviously I want them to remain in business. On the other hand I’m sick of these bailouts and if the company can’t turn a profit then maybe it needs a bankruptcy to restructure? Then again, how come the banks can get money with less hassle? It’s a mess! For so many reason I hope these companies can get it together!
What do you think?
Article source: Wall Street Journal
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photo credit: Derek Farr ( DetroitDerek )
{ 2 comments… read them below or add one }
I’m torn, as well – the auto industry is important but I hate seeing laziness and poor decision-making being rewarded.
We’ll have to wait and see what happens …
@ TStrump – I think with the auto makers it’s more than what you say. I think they have some serious problems with the unions which ties their hands in a lot of decisions. Like you say, We’ll see..