Detroit Bailout; Ford Opts Out?

As we noted Saturday morning, the $15B Detroit bailout is moving ahead. The preliminary deal looks to be a a loan, plus supervision and an equity stake. And I’m not sure, but Ford is making noise as if they are opting out of part of the deal:

The U.S. government may end up holding stakes in General Motors Corp., Ford Motor Co. and Chrysler LLC if Congress and the White House reach agreement on a financial bailout for the automakers.

Under the proposed rescue, details of which are still being discussed, the Treasury would get warrants for stock equivalent to 20 percent of any government loans. With GM seeking as much as $10 billion and valued at $3 billion, the state may become the biggest shareholder. The legislation isn’t clear on what kind of holding the government would take, leaving it the option of preferred, common, voting or non-voting shares.

The Ford Motor Company announced Monday evening that it would not seek short-term federal aid, denying that it faced the same “near-term liquidity issue” as G.M. and Chrysler.

I still believe a prepackaged bankruptcy, with the government providing debtor-in-possession financing and guaranteeing the warranties of the makers is a better solution.

Here are the details of the current proposal:

• Auto Industry Financing and Restructuring Board –  Presidential appointee “Car Czar”

• Bridge Financing – Funds previously appropriated for Section 136 of the Energy Independence and Security Act (EISA).

• Assessment of Restructuring Progress – Evaluate progress of each Auto Manufacturer in 45 days.

• Negotiated Long-Term Restructuring Plans: Restructuring plan for long-term viability by 3/31/09

• Warrants: Each Auto Manufacturer receiving a loan will provide warrants equal to 20% of the loan.

• Executive Compensation: TARP restrictions apply.

• Dividends: Not permitted during duration of assistance (Why can Banks pay divvies? WTF is that about?).

• Super Seniority:  Subordinates all other auto obligations.

• Oversight – GAO, Special IG, and TARP provisions apply; full acccess to all auto records by GAO

• Terms and Conditions of Loans: 7 years, 5% for first 5 years, 9% thereafter, No prepayment penalty.

• Withdrawal from Lawsuits: Loan recipients cannot in any legal challenge State laws concerning greenhouse gas emission standards.

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Sources:
U.S. Rescue May Give Government Stakes in GM, Ford and Chrysler
John Hughes and Nicholas Johnston
Bloomberg, December 9, 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aj8WycWPOfEw&

Summary of the Auto Rescue Bill
Corey Boles
Auto Industry Tracker, December 8, 2008, 4:22 pm
http://blogs.wsj.com/autoshow/2008/12/08/summary-of-the-auto-rescue-bill/

Deal to Rescue American Automakers Is Moving Ahead
DAVID M. HERSZENHORN
NYT, December 8, 2008
http://www.nytimes.com/2008/12/09/business/09auto.html

U.S. Could Take Stakes in Big 3
Greg Hitt
WSJ, DECEMBER 9, 2008, 3:53 A.M. ET
http://online.wsj.com/article/SB122875608562688401.html

See also:
Car Dealers Brace for Closings, or for a Fight, as Detroit Seeks Help
http://www.nytimes.com/2008/12/09/business/09dealers.html

G.M., Under Pressure, Turns to Robert Lutz
http://www.nytimes.com/2008/12/09/business/09manage.html

Electric-Car Makers Struggle
http://online.wsj.com/article/SB122849893450683261.html