GM gets $4B loan, Chrysler waits
GM submits 'viability' plan as part of funding agreement; Chrysler negotiations 'positive and productive.'
WASHINGTON (CNN) -- General Motors got the first $4 billion of a series of emergency loans from the U.S. Treasury Wednesday, but fellow struggling automaker Chrysler was still waiting as the new year rapidly approached.
General Motors had said it needed the loan by the end of the month to continue operations; privately-held Chrysler said it will need $4 billion or it will also run out of cash early in 2009.
"Treasury today finalized the loan transaction for GM and funded the first tranche of $4 billion," said Treasury spokeswoman Brookly McLaughlin. "We're working expeditiously with Chrysler to finalize that transaction and we remain committed to closing it on a timeline that will meet near term funding needs."
Chrysler spokeswoman Lori McTavish said discussions with the Treasury Department had been "positive and productive" and that the company expected the deal would be done "in the immediate future."
Chrysler CEO Bob Nardelli made similar comments in a memo to the company's senior leadership team, a copy of which was obtained by CNN.
"The Treasury Department has been working to complete these multiple, complex financial arrangements quickly and sequentially," he wrote. The magnitude of these discussions are significant, and in the last several days, the Treasury Department has completed the first agreements, which included the TARP investment in GMAC and the loan for GM."
Nardelli said the discussions were ongoing, using identical language to McTavish regarding "positive and productive" talks and a completion of the agreement "in the immediate future."
A senior industry source said on condition of anonymity that Chrysler's loan was not likely to be released until Friday.
As a condition of its loan, GM submitted a "viability plan" to Congress, which it agreed to implement in order to secure the funds. In a statement late Wednesday, the company said it is committed to successfully executing its viability plan, and is "confident in the future of General Motors."
Both companies had expected their loans on Monday, but a senior industry source told CNN the loans were delayed because of the complexity of the transactions.
GM is to receive a second loan of $5.4 billion on January 16. If Congress gives its blessing, GM could receive an additional $4 billion loan on February 17.
Ford Motor has more cash on hand and has said it should be able to avoid tapping into federal dollars unless the weak auto sales continue longer than it expects in 2009.
The money for the loans is coming out of the $700 billion Troubled Asset Relief Program fund set aside in October to bailout financial institutions. President Bush made the decision to pull money from TARP after Congress failed to pass a bailout bill for the automakers.
Earlier Wednesday, auto finance company GMAC the results of a vote that the company said would help it become better capitalized and viable for the future.
The company, which provides loans to auto dealers and customers, said holders of $21.2 billion of its debt have agreed to a plan to swap their bonds for about $15.7 billion in stock and cash. A total of 59% of GMAC debt holders and 39 percent of its Residential Capital division investors made the switch.
GMAC has been trying to raise capital after the Federal Reserve said last week that it would approve GMAC's conversion to a bank holding company. The company said it hoped the exchange program would help GMAC meet the Fed's bank capitalization requirements, which would make it have $30 billion of capital on hand. But the Fed said it made a special exception for GMAC, as the government considers the company critical to the recovery of the U.S. auto industry.
The company is trying to recover from $7.9 billion of losses in the previous five quarters, most of which came from risky subprime mortgage bets made by ResCap. It got some help Monday night when the Treasury Department invested $6 billion in the company through TARP.
Partially owned by Chrysler parent Cerberus and also by GM, GMAC did not release details of how much capital it has raised to date. It previously said it would need 75% of bond holders to change their stakes to equity holdings to reach the $30 billion plateau.