DETROIT — Automakers are breathing a sigh of relief. Thanks to the $17.4 billion bailout loan approved by the Bush administration, they'll suddenly have the cash to pay their bills and avert a bankruptcy — at least for a little while.
The companies spent weeks lobbying hard for an emergency bailout, and their suppliers, the United Auto Workers and car dealers were chiming in, too.
Every player stood to lose in the event of a total collapse of the U.S. auto industry. And nearly everyone stands to gain from the bailout President George W. Bush ordered Friday — except for the workers whose jobs will be cut as the companies aim for viability, and shareholders and bondholders who will see their investments diluted.
Here are some questions and answers about who wins, and who loses, in the auto industry bailout.
Does this money save General Motors from filing for bankruptcy?
For now it does. GM will receive a total of $9.4 billion this month and next month, and an additional $4 billion from the second half of a $700 billion financial-sector bailout plan Bush signed this fall — as long as Congress allows that half to be released.
GM executives said the immediate loans would allow it to pay bills at the end of the month and into January.
What does this mean for Chrysler? Will its parent company, Cerberus, be able to keep the automaker in business?
It means Chrysler will be able to pay its bills and probably will make it until March, but its future is murky beyond that. Cerberus has stated publicly that it is patient and wants to turn the automaker around, but it has shopped Chrysler to General Motors and the combined Renault SA and Nissan Motor Co.
If auto sales don't come back, though, Chrysler's financial problems will persist. The company says it needs $7 billion every 45 days to pay parts suppliers, but expects to have only $2.5 billion on hand at the end of this year.
And what about Ford?
Ford says it doesn't need immediate funds and is working to avoid using any federal aid. But the company is watching developments closely; Ford executives have said that a GM or Chrysler bankruptcy would hurt them, as well, because the companies share several suppliers.
Ford CEO Alan Mulally said he testified in front of lawmakers to stand with the industry. But since then he has been trying to distance the company from the other two automakers because Ford has enough money to survive well into 2009.
What does this mean for the thousands of auto suppliers across the country?
Anything that makes automakers more stable is good news for suppliers, which rely on the car companies to do business. Many suppliers would have gone under if GM or Chrysler were unable to pay them on time next month.
And the dealers? They've already been struggling to arrange financing for potential customers — will the bailout help?
Dealers have been pushing for such a loan, as a collapse of one of the U.S. automakers would scare off customers. Who wants to buy a car from a bankrupt company, worrying it won't be around in a few years when they need service covered by their warranty?
If one of the car companies went under, many dealers would eventually shut their doors.
Will United Auto Workers members lose jobs or take pay cuts as part of the bailout deal?
Yes — GM and Chrysler must pare down in an effort to become profitable.
Claire McClinton, a GM metal center worker in Flint, Mich., said challenges lie ahead for employees. "We're not hopeful about the future. We as workers still have work to do in terms of fighting to maintain our standard of living."
UAW President Ron Gettelfinger said terms ordering the companies to bring wages in line with what foreign automakers pay in the U.S. added "unfair conditions singling out workers." The union said it would appeal the conditions to the incoming Obama administration.
Bush's bailout plan sets "targets" for Chrysler and GM to reduce labor costs and change work rules so they are competitive with foreign automakers that operate U.S. factories, such as Toyota Motor Corp., by the end of 2009.
It also seeks elimination of the "jobs bank," in which UAW workers get about 95 percent of their pay for up to two years after being laid off. It also says the union should accept stock as half the companies' payments into a trust fund that will take over retiree health-care expenses in 2010.
The union already agreed to give up the jobs bank, but negotiations with top Senate Republicans that would have imposed the other requirements fell apart earlier this month. That thwarted bailout legislation and forced the White House to step in.
What happens to stockholders? Will shares rise because the companies have been pulled from the brink?
Stockholders probably will take the biggest hit. A couple of bailout provisions will force GM to issue more shares, diluting the value of its stock, said Efraim Levy, a senior auto industry analyst with Standard & Poor's.
One is a requirement that the government gets the right to purchase shares in the company. The other is a provision saying that when GM pays into a union-administered trust fund that will cover retirees' health care, the proportion of the payment that will be company stock will increase.
Levy figures the additional shares will dilute stock values by three to five times.
Will bondholders receive the full amount on their holdings?
Bondholders — people and institutions that have invested in the companies' debt — may be left with a take-it-or-leave-it proposition, with the government requiring them to exchange two-thirds of their holdings for stock that may not be worth as much. But they, too, could try to negotiate later on with the Obama administration.
If they don't take the deal, GM could wind up in bankruptcy and the bondholders would get little or nothing, said Pete Hastings, an auto industry corporate bonds analyst with Morgan Keegan & Co. in Memphis.
How will Detroit fare? Is the city saved from the brink of disaster?
The auto industry isn't confined to Detroit, as cities and towns across Michigan — and throughout the Rust Belt — are home to U.S. auto plants and their suppliers. And of course there are auto dealerships in every state.
For Michigan, the move helps stave off massive layoffs. The unemployment rate in the state rose to 9.6 percent in November, the highest monthly rate since March 1992.
Michigan Gov. Jennifer Granholm is hopeful. "This is going to help lead the nation out of this economic downturn," she said Friday on CNBC.
What does this mean for owners of GM and Chrysler vehicles, or people looking to purchase a new one?
The deal bodes well for consumers because it means the automakers aren't going anywhere and their warranties will still be worth something. Under bankruptcy, warranty holders are treated as unsecured creditors, which means the guarantees on the cars are basically worthless.
Also, thanks to the rescue, potential buyers still will have a wide selection of vehicles to choose from.
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