The details of the bailout for Detroit continue to change, as legislation approving the emergency bailout funds has passed the House of Representatives, but it now heading for a showdown within the Senate.
Provided in the bailout legislation is an immediate $14 billion in loans to prevent the collapse of General Motors and Chrysler. The funds are expected to carry the automakers through March of next year.
While the legislation is intended to help keep American automakers and the economy, on track, there are many that are vehemently opposed to the bailout as there are concerns that GM and Chrysler will fail regardless of the $14 billion bailout package.
GM and Chrysler both are suffering amid weakening demand for new cars, with Birmingham Chevrolet dealers noticing rapidly changing buying habits from consumers. Ford also has suffered steep losses, and has had to sell assets such as Jaguar and Land Rover, but Maine Volvo parts dealers remains more optimistic, and the automaker says it’s much more stable than GM and Chrysler and as such is requesting a $9 billion credit line in case the economy and the auto market suffers further.
The bailout legislation certainly has strings attached, and is not merely a blank check. This includes an appointee that has been dubbed a “car czar” to oversee the restructuring of the Detroit automakers. Additionally, the interest rate on the loans will be 5 percent for the first five years, and 9 percent after the five years. The legislation also gives taxpayers equity stakes in the companies, prohibits the payment of stock dividends, and sets limits on executive compensation. It also prohibits the ownership of corporate jets.
Any move the automakers make will be under the watchful eye of the federal government. The auto czar will have the ability to approve or veto any transaction valued over $100 million. Such authority will be able to prevent the closing of manufacturing facilities and prevent production from moving overseas. While restructuring is due to be completed by the end of March, the car czar will also be able to grant an extension by one month.
With the economy expected to remain in a weakened stake for some time, it’s expected that auto sales will also continue to suffer. If sales remain down as feared by Chrysler Chicago and others, many are wondering if the $14 billion is really enough to save the automakers from going under.
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The bailout saga continues, stay tuned.
