The Bush administration Friday extended $13 billion in loans to embattled automakers, General Motors and Chrysler, assuring their survival for at least the next two months.
President Bush said the loan package prevents bankruptcies that would have disastrous economic effects. The two automakers were close to running out of cash as car sales plummeted during October and November as prospective buyers turned cautious or were unable to get car loans. U.S. car sales are down over 25 percent this year amid the worst sales slump in 28 years.
Robert Schultz, an analyst at Standard and Poor's in New York, says the two companies probably would not have survived without the loans.
"This, in our view, moves them into 2009, where we have no doubt there will be more extensive talks with Congress and these companies about their turnaround plans. So, it is certainly not enough for them to survive even all of 2009, but it gets them into next year with a new administration and a new congress," Schultz told Marketwatch.com.
The Bush administration made the loans from a $700 billion financial bailout fund already approved by Congress. They come in two installments, with a second $4 billion tranche to be available after January 20.
The loans are controversial within the president's Republican Party because provisions calling for shared sacrifices by management and labor can be altered by the incoming Obama administration. The autoworkers union is already saying the loan terms are unfair and should be changed.
General Motors stock, which was down 15 percent Thursday when President Bush raised the possibility of bankruptcy, rallied over 20 percent on Friday. Nonetheless, General Motors and Ford stocks are down over 80 percent in the past year.
Wall Street was up sharply after the auto bailout was announced but then fell back. The Dow Jones Industrials lost 25 points to 8,579, a 0.3 percent loss on the week. Oil prices were again lower with oil closing in New York at a four-and-a-half-year low of $34 a barrel. As the global economy has slipped into recession, oil prices have plummeted over 70 percent from the record highs set in July.
President Bush said the $13 billion loan package prevents bankruptcies that would have disastrous economic effects