President Bush announced the deal Friday, one week after Congress narrowly failed to approve a similar plan meant to help the two giant U.S. automakers, as well as Ford, which isn't in as dire financial straits.
Under the plan Bush outlined Friday, GM and Chrysler will have until March 31 to restructure their businesses to remain viable.
The loans – $13.4 billion now and another $4 billion available in February – will come from the Troubled Asset Relief Program (TARP), the $700 billion fund set up by Congress earlier this year to aid the U.S. financial sector.
GM and Chrysler had told Congress they would build more high mileage and energy-efficient vehicles if they received federal assistance. But with sales plummeting and the two companies facing cash shortages, it had been unclear whether the two companies could keep their operations going, let alone follow through on those pledges (see Auto Bailout Dies; Will Green Pledges Follow Suit?).
GM, for example, plans to launch its hybrid Chevy Volt in 2010 and follow that up with half a dozen hybrid models by 2012 (see Chevy Volt Cleared for 2010 Production). But on Wednesday, GM said it had delayed construction on a $370 million factory where it planned to build the engine for the Chevy Volt and another fuel-efficient model, the Chevy Cruze.
GM thanked Bush for the bailout in a statement Friday and said it was "fully committed to leading in energy-saving vehicles and technologies."
Chrysler had promised a 2009 fleet with 73 percent more fuel-efficient vehicles from this year, as well as an electric-drive vehicle in 2010 (see Chrysler Eyes 2010 for Launch of One of Three Electric Cars). But the automaker said this week that it would shut down all of its 30 plants for at least a month starting today to conserve cash. GM and Ford have also announced extended year-end plant shutdowns.
Ford is not in as dire financial straits as Chrysler and GM, but lobbied for the bailout to prevent a failure of the other two automakers from disrupting the industry.
Ford wants to release an electric van in 2010 and an electric sedan in 2011 for fleet customers, as well as more hybrids and all-electric cars for consumers in 2012 (see Ford Outlines Fuel Economy, Electric Car Plans to Feds). The company plans to spend about $14 billion in the next seven years to develop advanced technologies and products to improve fuel efficiency.
U.S. sales for the Big Three have been dismal this year, as the collapsing housing market, resulting credit crunch and turmoil on Wall Street have led the U.S economy into recession. GM is down 22 percent, Ford down 19 percent and Chrysler down 28 percent, compared with an industry-wide average sales drop of 16 percent, Bloomberg reported.
Bush's plan comes with demands that the Big Three restructure their finances, reduce their debt by two-thirds and reduce their unionized workers' wages to more closely match those of workers at foreign-owned auto plants in the United States.