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Aid in Hand, Clock Ticks for Detroit
· End bonus payments for the firms' top 25 executives.
· For bondholders, swap two-thirds of GM's $32 billion of bonds for equity stakes currently worth a fraction the bonds' depressed values.
· Eliminate union-negotiated benefits that pay laid-off workers for up to two years.
· Auto companies should use newly issued stock instead of cash to pay half of the billions of dollars owed to the underfunded health care plan for retired UAW members.
The plan would all but wipe out value for existing shareholders and lead to a new ownership structure. Depending on the outcome of negotiations, the government could end up with a 20 percent stake and unions with 25 percent. Bondholders would own almost half.
Bush said the federal loans, which will carry an interest rate of 3 percent above a standard interbank lending rate, were necessary to avoid a "disorderly" collapse of an industry that supports hundreds of thousands of jobs. He also said they were designed to give the companies "a brief window" to restructure "outside of bankruptcy" and prove they are financially viable.
If that is not done by March 31, Bush said, the government will call its loans and let the companies declare bankruptcy or fail. The deadline and other restrictions "send a clear signal to everyone involved," he said. "The time to make the hard decisions to become viable is now -- or the only option will be bankruptcy."
Obama called Bush's action a "necessary step . . . to help avoid a collapse of our auto industry that would have had devastating consequences for our economy and our workers."