Was the fourth quarter of 2008 good to Chrysler? Since Thanksgiving it has had to cut more than 5,000 salaried jobs and close an assembly plant; it staggered through December with a 53% drop in sales. But the season was not without good tidings: Chrysler got $4 billion in federal bridge loans and its finance company is awaiting approval of another $1 billion to $2 billion from the U.S. Treasury. "Chrysler Financial is optimistic it will receive the necessary support from the Treasury," says spokeswoman Amber Gowen.
General Motors is getting an even bigger boost. After GM collected $9.4 billion in federal loans last month, its finance arm GMAC, which GM jointly owns with Cerberus Capital LLC, got a Treasury Dept loan of $6 billion. GMAC has been hammered by both the sharp decline in sales of GM vehicles, which it finances, and steep losses in its mortgage portfolio over the past year. (Read "Is This Detroit's Last Winter?")
The $9.4 billion loan to GM raises hopes that the company can survive the first quarter and present a complete re-organization plan by March 31. GM hasn't said yet whether it will require additional loans during this quarter $4 billion more has been authorized though CEO Rick Waggoner, speaking to reporters at the Detroit Auto Show, said it is a possibility. He also said that a GM bankruptcy is still "an option".
The auto industry bailout saga is working its way up and down the supply chain. Shortly before Christmas, the Federal Reserve Board quietly provided $200 million of support aimed specifically at auto dealers, who have had a difficult time financing their inventories forcing some of them out of business. The support is being administered through the Fed's Term Asset Backed Securities Loan Facility or TALF, which was created this past autumn to encourage banks to start lending again. To further help the dealers, the Fed eased the eligibility requirements so that inventory financing (and there's plenty of inventory to finance) now qualifies as an "asset" that can be packaged into a security just like a mortgage or a car loan.
Next up? Auto parts suppliers. Treasury is now preparing new guidelines, making supplier companies that feed parts to Detroit's troubled automakers (and often, transplants like Toyota as well) eligible for loans through the TARP, which initially was set up by Congress to help troubled financial institutions. "If you are based in Detroit you know the entire supply chain is in trouble. The liquidity situation in the supply chain has deteriorated significantly," says Steve D'Arcy, the director of Pricewaterhouse Cooper's consulting practice in Detroit. (Archive: "Iacocca's Tightrope Act")
Meanwhile, companies large and small are lining up to tap the $25 billion in loan guarantees administered by the U.S. Department of Energy to help the automakers re-tool for building more efficient vehicles. Congress appropriated the money in September and President-elect Barack Obama promised to double the funding during a late October visit to Detroit.
So far, the DOE money has not been touched but requests for funding were supposed to be submitted to DOE by mid-December. Among the requestors is Tesla of Menlo Park, Calif., which is building a battery-powered sports car that will sell for more than $100,000. Telsa has asked for $480 million in government money, while A123, which has developed a lithium-ion battery for cars, is seeking $1.5 billion.The smaller companies, many of them based in California, have been lobbying hard to make sure they get their share of the $25 billion. They have received support from House Speaker Nancy Pelosi and Governor Arnold Schwarzenegger.
Don't press the Total key on your calculator just yet. Congress is also supposed to appropriate another $3.3 billion to finance research on new high-tech batteries that could be used for cars. The money had been authorized under the same 2007 energy bill that authorized the $25 billion.
Remaining on Detroit's wish list: tax breaks for consumers who buy new vehicles and/or fuel-efficient hybrids. The desired incentives would be a combination of new incentives and extensions of credits already in the tax code. The National Automobile Dealers Association has made the incentives a top lobbying priority; new legislation has already been introduced in Congress. One proposal supported by Democratic Sen. Barbara Mikulski of Maryland and Republican Sen. Kit Bond of Missouri would permit new car buyers to deduct auto loan interest and sales tax on their personal income taxes. "We think temporarily making interest deductible on car loans would spur sales," says NADA economist Paul Taylor. The NADA is also supporting "cash for clunkers" initiatives, which encourage consumers to upgrade their older cars to cleaner, more fuel-efficient models. "None of these have been costed out yet," says an aide to a Democratic member of the House of Ways and Means Committee. But she says they are likely to be part of the economic stimulus package proposed by the new Obama administration