Source of Aid Money for Automakers Is Going Fast
Thursday, February 19, 2009
General Motors and Chrysler have said they need another multibillion-dollar cash infusion, but the source of money that funded their initial government bailout is drying up.
The companies previously borrowed $17.4 billion from the Treasury's financial rescue plan, known as the Troubled Assets Relief Program, or TARP. More than $160 billion remains in that fund, but many analysts say the pot isn't big enough to address current plans to fix the financial system, let alone prop up the auto industry.
The ball is now the Obama administration's court. The president's task force is reviewing the automakers' restructuring plans this week and must decide whether to provide further help to the companies.
It needs to happen soon. GM said it will run out of cash by March 31 -- just six weeks from now. The two companies say they may need as much as $21.6 billion to weather the downturn and return to profitability. Whether the administration can return to Congress for additional funds is an open question. Already bills involving aid to Detroit's automakers have not been easy to get through the House and Senate.
"From where I sit, it's an executive decision," said Sen. Bob Corker (R-Tenn.).
The new plea for aid should not have been a shock to the Treasury because GM has provided regular updates the past two months, said Ray Young, GM's chief financial officer.
"They fully understand we're coming in with additional requirements," Young said after delivering GM's plan Tuesday. "It will come as no surprise."
Yet neither automaker specified where the money should come from.
"It is premature for Chrysler to comment on the Treasury Department's options for helping ensure a viable domestic automobile industry," said Chrysler spokesman Stuart Schorr.
As long as the government wants to see the companies survive, it will likely have to provide financing to the companies whether or not they file for bankruptcy protection because private sector lending is practically nonexistent.
GM and Chrysler told the government that it would be far cheaper to finance their operations outside the court-managed bankruptcy process than in it, which can be a long, costly process.
Chrysler estimates that it would need $24 billion in government financing to work its way through the bankruptcy reorganization process because consumers would likely shun showrooms and the burden of warranty and other obligations would shift to taxpayers.