Automakers get aid; TARP is tapped

The White House and Treasury Department have come to the rescue of the U.S. auto industry with a $17.4 billion loan package that will be financed through the $700 billion Troubled Asset Relief Program.

General Motors Corp. and Chrysler LLC  expected to draw down the first $13.4 billion of that total over the next two months. GM would get $9.4 billion and Chryster would get $4 billion. The remaining $4 billion would become available in February.

The rescue plan will claim the last of the initial $350 billion that Congress authorized for TARP. Treasury Secretary Henry M. Paulson Jr. said he will ask lawmakers to release the second half of the money to fund additional economic-stability efforts.

The term sheet that the Treasury Department released Friday gives the automakers two months to develop preliminary financial and operating plans that would lead to long-term viability, international competitiveness and energy efficiency.

If they cannot demonstrate long term viability by March 31, 2009, the government can call the loans.

Automakers who get aid from the government must accept restrictions on executive salaries and bonuses, incentive compensation and severance, in keeping with the guidelines established for financial companies getting aid through TARP.

The rescue package also calls for the borrowers to cut total compensation for their American workers to levels that equal the average pay and benefits at Toyota Motor Corp., Nissan Motor Co. and American Honda Motor Co. in the United States. The automakers would have to meet that target by Dec. 31, 2009.

In addition the automakers must stop making payments to any employees who have been fired, laid off, furloughed or idled through some other means, such as the so-called "jobs bank'' created decades ago to ease the pain of earlier restructuring efforts.

The aid is contingent on the unions representing workers at the automakers signing the agreements as well.

The rescue plan also call for Chrysler and General Motors to make their best efforts to reduce their public indebtedness - excluding pension and employee benefit obligations - by two-thirds. They could either issue new debt or convert old debt to equity.

In addition, automakers who accept the loans must sell all of their corporate aircraft or interests in corporate aircraft. Executives of Chrysler, General Motors and Ford Motor Co. angered members of Congress in November when they flew to Washington on private jets for hearings at which they appealed for taxpayer money.