President George W. Bush announced that he would provide low-cost loans to GM and Chrysler, provided that they can create a plan for “viability” in the next three months. Chrysler and GM have said they would have to declare bankruptcy without the loans, with major payments due to suppliers in January that they can’t pay for.

Two of the Big Three will receive $17.4 billion in exchange for certain wage concessions. If at the end of three months the two companies have not submitted a viable plan for stability, the government will “call its loans regardless.” The government can also take 20 percent stakes in the companies in exchange for the loans if it decides to do so. The terms of the loans can be changed by incoming President Barack Obama, since the bailout was done on executive order and not through Congress. Obama said that he agreed with Bush’s move to bail out the auto industry.

General Motors gets a larger chunk of the first bailout outside of the financial industry, $9.4 billion, while Chrysler gets $4 billion.

Why was Ford left out? Ford has said it doesn’t need “immediate assistance” and might be waiting on the sidelines for a relief package from Congress with fewer strings attached.

The billions will come from the $700 billion Troubled Asset Relief Fund (TARP), the “Wall Street bailout” approved with discretion to be doled out by the Treasury. Carmakers will become eligible for $4 billion more in February.

As a condition of the loans, Bush said that auto workers will be forced to accept “competitive” compensation with that of foreign auto companies in the United States. Other conditions are:

-No bonus payments to the top 25 executives
-Bondholders have to swap their bonds for bonds worth much less than the ones they hold, with two-thirds of GM and Chrysler’s debt required to be restructured
-End union benefits that continue to pay laid-off workers’ salaries for two years, called the “jobs bank” program
-Companies must issue new stock to pay for underfunded health funds administered by UAW

These conditions would decimate the value of current carmaker shareholders’ stock.

GM’s CEO, G. Richard Wagoner Jr., said that GM “helped build the country” and that the bailout would allow GM to restructure.

Some questions to ponder:
Will the loans keep Chrysler and GM from declaring bankruptcy or simply postpone the inevitable?
How will the bailout encourage consumers to buy cars when they’re simply not doing so right now?