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December 19th, 2008
11:19 AM ET

Financial Dispatch: Lifeline for GM & Chrysler

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/POLITICS/12/19/auto.bailout/art.bush.auto.cnn.jpg caption="President Bush said Friday that automakers must show they can be profitable businesses by March 31."]

Andrew Torgan
CNN Financial News Producer

President Bush this morning announced a rescue plan for General Motors and Chrysler. The two automakers will get $13.4 billion in short-term financing almost immediately and an additional $4 billion will be potentially made available in February.

The money will come from the $700 billion fund set aside to bailout Wall Street firms and banks in October. The loans are three-year loans - but the money will have to be repaid immediately if the firms do not show themselves to be viable by March 31. The automakers must meet a number of conditions, including accepting limits on executive compensation and eliminating perks such as corporate jets. They must also allow the government to examine their books and the government will have the power to block any large transactions. Ford is not part of this bailout.

Chrysler will shut down all vehicle production in the United States starting after the last shift today for at least a month. General Motors is idling 30% of its North American manufacturing capacity during the first quarter of 2009. And Ford is adding a week to its normal two-week seasonal shutdown at a number of its plants. Temporary plant shutdowns give automakers the chance to stop making cars and sell off the ones that are still sitting around. But in Chrysler's case, the benefit comes from the money it saves on day-to-day costs.

Stocks on Wall Street opened higher as investors look over the details of the auto bailout and prepared for market volatility caused by what’s known as quadruple witching. “Quadruple witching,” which occurs four times a year, is the simultaneous expiration of market index futures, market index options, stock options and stock futures. As investors rush to unwind their positions, stocks have the potential to be extremely volatile.

Nearly 3 months after the founder of its parent company was arrested on fraud charges, Polaroid filed for bankruptcy. The 70-year-old company that invented “instant film” photography said it made the filing to “facilitate” its financial restructuring. Federal prosecutors have accused Tom Petters, founder of the Petters Group which has owned Polaroid since 2005, of leading a more than $2 billion fraud at the company.

It seems like everyone these days wants a piece of the $700B dollar bailout bill. And if you ride your bike to work, you’re entitled to one. Buried within the bailout legislation is a $20 per month tax break for bicycle commuters. Biking to work got a lot more popular this summer when gas prices surged. Now that gas is relatively cheap again and the weather is turning colder, it’s hard to say whether the trend will continue. But even if you do bike to work, getting your hands on the money might not be easy. Very few companies are ready to implement the biking benefit, even though it goes into effect on January 1st. That’s today’s Energy Fix.

Cash-strapped consumers got some welcome news Thursday when regulators voted to rein in controversial credit card practices. But they'll have to wait another year and a half to get relief as the new rules won't take effect until July 1, 2010. The new regulations mark an end to double-cycle billing, which averages out the balance from two previous bills.

That means that consumers who carry a balance will no longer get hit with retroactive interest on their previous month's bill. And credit card companies will no longer be able to raise the interest rates on pre-existing credit card balances unless a payment is over 30 days late. Consumers will also be given a reasonable amount of time to make payments, and payments will be applied to higher-rate balances first, to reduce interest penalties and fees.

Gas prices rose 0.3 cents to $1.673 a gallon. The current national average is now $2.441 below the record high price of $4.114 that AAA reported on July 17, 2008. 2 states have regular unleaded gas prices of $2 and higher. 48 states and the District of Columbia have regular unleaded gas prices below $2. The highest gas prices are in Alaska ($2.648). The cheapest gas prices are in Utah ($1.486).

And oil prices are hovering around $35 a barrel. Oil has dropped 25% this week, hitting the lowest point since April 2004.

soundoff (17 Responses)
  1. Cori from Colorado

    What a way to continue to bankrupt our economy. When will these bad decisions and handouts stop? I have a very hard time imagining a secure future in America. We continue to see more job losses, failing healthcare, money being borrowed from other countries in exponential amounts, the rich getting richer and the poor getting poorer......it's just one crises after another, and it worsens daily.

    I weep for the children of the future in this county, because they have to inherit this nasty mess. What a legacy we've given them huh?

    December 19, 2008 at 4:13 pm |
  2. Cheryl W.-Wayne, MI.

    I just would like to say I have lived here near Detroit all my life, Sure there are alot of issues with the unions etc. But I hear people from every where else in the States; Blah Blah Blah about how they shouldn't be helped with tax dollars, Well guess what maybe we shouldn't help with our tax dollars For rebuilding homes in the hurrricane areas over and over again! And homes that are in the fires all the time in the West Coast and mud slides!!!!! When was the last time Michigan ever asked for federal dollars for a crisis????
    We may not have hurricanes and all that but we have power outages etc. from our 10 inches of snow we got today...We are dealing with it! But for Michiganders the Big Three is a CRISIS For us. And I don't even work for the Big 3 nor my Husband or son. But it will be a disaster for our state and communities...So Thanks alot!!!! Just think of all the federal tax dollars you will all lose when all these people are not working? And the next time you other states need help count out our tax dollars here because there won't be any!!!!!! DAH.

    December 19, 2008 at 3:57 pm |
  3. Colleen-Omaha

    I think it's important to save the auto industry.

    BUT...The UAW is either in denial or can't let go of it's culture of greed. Taking another pay cut would still make them higher paid than most middle class workers, not to mention their incredible benefits.

    There are thousands of people out of work and unable to find work who would love to work for the "lower wages" comparable to other auto workers. They need to get it in their heads...either make sacrifices like the rest of us and have a job, or hold out for more money and have no job. Greed is the main cause of all of our economic problems.

    December 19, 2008 at 3:42 pm |
  4. Tina

    Where is this money coming from ? I don't think we have enough gold in Fort Knox to back it up!!!! I bet the stock market will really crash now. Whatcha think? What are they thinking?

    December 19, 2008 at 3:36 pm |
  5. Arachnae

    Why is Ford not part of this deal?

    Ford is apparently more solvent than Crysler and GM.

    People who are whining about free markets need to consider this – some portion of the situation the car makers find themselves in is caused by the global credit crisis. That is, while they undoubtedly made bad business decisions, in a healthier economy, they might have easily survived them and come out on the other side stronger and more secure.

    It is unconscionable to bail out financial companies who create nothing tangible while refusing to help manufacturers who actually have a physical product that people would buy if someone would give them a loan.

    December 19, 2008 at 2:43 pm |
  6. JC- Los Angeles

    It appears once again that the colossal failure know as Paulson, has failed to realize that he is not extending a lifeline to the automotive industry but rather an exhaust pipe for the worthless executives to take a drag on.

    Maybe a little strategic thought like having Ford solely make trucks; GM solely make hybrids; and Chrysler economy cars?

    Hacks one and all.

    December 19, 2008 at 2:05 pm |
  7. Judith-Florida

    Treasury Secretary Henry Paulson that got the blank check of $700 billion used half and many of the CEOs helped themselves to bonuses.He said $350 billion was going to go to the next group after President-elect Obama is in office.Ones were saying that the money for the loan of the Big 3 can be taken out of that and now that Bush said he was going to help them all of a sudden today,on Friday that Congress will need to release the last half of the $700 billion rescue fund because the first $350 billion has been committed. Paulson has yet to tell who received what and how much and which places of business stayed and others failed.Anderson this is the guy you should keep honest and questions should be answered.

    December 19, 2008 at 1:27 pm |
  8. Michael Odegard

    This is a horrible idea for Gen X and younger Americans. The long term consequences of this and other bail-outs has made an economic depression inevitable. In the last 40 years, America has seen a stratification of wealth which mirrors the wealth distribution in third world countries, outsourcing, the acceptance of at least 20 million illegal workers, run-away spending, unstable interest rates, wantonly irresponsible borrowing and a war so expensive, unnecessary and unjustifiable it rivals Vietnam.

    The responsible thing to do would be to let the US economy hit rock bottom while the people who drove there can be alive when the Country learns from it's mistakes. Instead, we are going to watch baby boomers pass the buck and let younger people pay for the bliss their ignorance afforded them.

    December 19, 2008 at 1:06 pm |
  9. Dennis - New York

    Would you keep pouring water into a glass that leaks ? Of course not, you would stop pouring water, fix the leak, and then start repouring. So, why not let the big three go into chapter 11, reorganize, then move foward.. There is fear mongoring that 3 million people will be out of work if this happens, but, the truth is, 3 million people will be out work if we don't..

    December 19, 2008 at 12:52 pm |
  10. Judith-Florida

    As far as the Credit Card companies for low interest rates maybe this is why the card companies put their interest rates up even with great credit people because they had a heads up that this was going to happen.This could have gone into effect as a rush bill for the people of the USA because of jobs lost,homes lost and healthcare lost.
    How about Bush's new Lame Duck abortion rule that goes into effect today and will cost over $44 million.He's still spending our taxpayers money a few weeks before of his retirement.

    December 19, 2008 at 12:44 pm |
  11. sns

    Why is Ford not part of this deal?

    December 19, 2008 at 12:41 pm |
  12. Wes

    One day we will look back on this period, as the point that our leaders drove the U.S. economy into long-term economic crisis. ALL of these government bailouts are insane. Free markets will not work if there is no downside to poor management, leadership and strategy, whether on Wall Street or Main Street. The monetary policies we are pursuing are incredibly short-term, just look at the precipitous decline of the dollar against the Euro yesterday to see the impact of these policies. Bush, Paulsen, Obama, Congress... are all wrong on this, and one day future generations will look back and remember who it was that made the decisions that sent our deficit plummeting beyond the $1 trillion mark while simultaneously devaluing the Dollar... all to save greedy Wall Street executives and incompetent automotive firms... Sad days for future generations of Americans who will end up being asked to pay the bill for this short-term thinking!

    December 19, 2008 at 12:30 pm |
  13. Teresa, OH

    I welcome the credit card changes too. I have put my own freeze on all credit card usage in my home. No dough, no buy. I dont understand why changes take so long to go into effect ? 2010? We will have declared a "depression" by then, wont we?

    As a UAW household, I am grateful for the LOAN Bush has offered. I'm not sure if it will have the desired result, but I think it's important to try to keep as many American companies afloat as we can. God knows, we help every other country.

    December 19, 2008 at 12:26 pm |
  14. Judith-Florida

    President Bush said last weekwhen he shook hands with the Democrates that he was willing to do this for the Big 3 but left it go when he went on his secret trip and got a pair of shoes thrown at him.
    He came back and kept saying for another week 'well I don't know if I'll be able to help them'.Now all of a sudden he changed what he said
    previous.He is aware that each day goes a new day with more money needed than before.Why did he drag his feet so long when in fact he wanted everyone together to vote for the bail out of the $700 billion for Wall Street.How many of the CEOs help themselves to millions for a bonus?Now there are concessions for the UAW workers when in fact they took so many already that the news is not talking about.How about over $4,000 that got salary increases in the Senate and Congress for a bonus and costs of living increase when in fact that should have been frozen because of the economy?It's always the middle class that should keep giving and getting less.
    Let's keep them honest Anderson and please get some answers for the viewers.

    December 19, 2008 at 12:25 pm |
  15. Dan W

    I really wonder what is going to happen if the unions do not give into the wage consession requirement? Since the Dems are going to be in control then, the unions will probably just get a slap on the wrist. Wha cant we let these companies fail? The government let the airlines fail, the let banks fail (12 in Georgia so far), the let small business fail, so again why cant we let the Big three fail? And don't give me any of the too big to fail rhetoric.

    December 19, 2008 at 12:08 pm |
  16. Michelle

    Thank goodness President Bush finally did the right thing.
    America must manufacture products.

    December 19, 2008 at 11:51 am |
  17. Annie Kate

    Finally, I'm glad Bush came across on something for the auto makers; I just hope the constraints and requirements are taken seriously – I don't understand one thing though – if the company cannot prove it is viable by March 31st it said the loan had to be paid back immediately – by March 31st don't you think the whole loan will have been spent and there won't be anything to pay it back with if the company is truly not viable??

    I like the credit card bill – too bad it won't come into effect earlier. I like the part especially where payments will go towards higher interest balances first. I don't plan on using much credit anymore but the items in the bill are good to have just in case.

    Gas here in Birmingham is still lower than the national average at about 1.50 a gallon according to my daughter who filled up her car yesterday. It would be nice if the price of gas would stay low but I know better than to pin much hope on that one.

    Annie Kate
    Birmingham aL

    December 19, 2008 at 11:30 am |