GM and Chrysler may not receive additional bailout funds

GM and Chrysler may not receive additional bailout funds

The White House will announce on Monday morning that they have rejected the restructuring plans submitted by GM and Chrysler as inadequate and that they will not extend any further bailout funds to the two companies at this time. They will, however, extend temporary financing for the two companies to work out new restructuring plans. You can see the full text of the White House’s plan here.

The first finding in the White House report is that neither company has yet presented a legitimate plan to regain profitability and stability. “The plans submitted by GM and Chrysler on February 17, 2009 did not establish a credible path to viability,” the report says. “In their current form, they are not sufficient to justify a substantial new investment of taxpayer resources.”

However, the White House has decided to give them a second chance at designing an adequate restructuring plan, providing temporary financing to keep them afloat while they do so: “Each will have a set period of time and an adequate amount of working capital to establish a new strategy for long-term economic viability.”

In the case of Chrysler, the report concludes that the automaker “is not viable as a stand-alone company.” But since Chrysler is negotiating a merger with Fiat that could help the company remain viable in the long run, the administration “will provide Chrysler with working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders. If successful, the government will consider investing up to the additional $6 billion requested by Chrysler to help this partnership succeed. If an agreement is not reached, the government will not invest any additional taxpayer funds in Chrysler.”

In the case of General Motors, the report is more optimistic, saying that the administration “is confident that with a more fundamental restructuring, GM will emerge from this process as a stronger more competitive business.” To that end, the administration pledges to “provide GM with working capital for 60 days to develop a more aggressive restructuring plan and a credible strategy to implement such a plan.” As part of that arrangement, CEO Rick Wagoner was asked to step down.

The report conspicuously notes that bankruptcy is still very much on the table: “While Chrysler and GM are different companies with different paths forward, both have unsustainable liabilities and both need a fresh start. Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way. Unlike a liquidation, where a company is broken up and sold off, or a conventional bankruptcy, where a company can get mired in litigation for several years, a structured bankruptcy process – if needed here – would be a tool to make it easier for General Motors and Chrysler to clear away old liabilities so they can get on a path to success while they keep making cars and providing jobs in our economy.”

The report says that should either company go under, the government “will stand behind new cars purchased from GM or Chrysler during this period through an innovative warrantee commitment program.” It also announces the appointment of Edward Montgomery, a former deputy secretary of labor, as director of Recovery for Auto Workers and Communities, which will work with the two companies to meet the administration’s demands.