GM Getting Back in the Groove

General Motors now believes they have enough government loans to get them beyond their worst-case scenario. Should the economy not get any worse, the Detroit-based automaker will not ask for more bailout loans at a later date.

Currently, the US Treasury has authorized $13.4 billion to the Big 3 manufacturers. The first $4 billion was delivered on December 31, with another $5.4 billion on the way this month. All of the money was relesaed under the Troubled Assets Relief Program, originally intended to shore up the bottom lines of America's financial institutions. President George W. Bush worked with the Treasury to expand TARP to also cover Chrysler and GM.

Congressmen in Washington D.C. still have to approve the second half of TARP, equal to $350 billion. The remaining $4 billion to GM would come in February, if Congress continues to approve the bailout fund.

An additional $6 billion was provided to GMAC, the financing arm of General Motors. The lender has pledged to use the money to approve loans for potential customers, while helping dealerships avoid defaults on their loans.

The news may cause some difficulty for General Motors, who is trying to get concessions from their largest labor union. Representatives from the United Auto Workers will arrive in Detroit today for talks with each of the Big 3 car companies. Talks with GM will begin Monday, and although the two sides recently agreed to a new contract, GM negotiators will likely look for compromises that helps the company in the short-term.

UAW President Ron Gettelfinger spoke of the talks in a statement, saying, “We'll sit down and have discussions along the lines of things we could do in the contracts and have that ratified without opening the contracts.”

Nonetheless, a stagnating, or improving economy is good news for the General. Their worst-case scenario saw them selling only 10.5 million cars in 2009. By comparison, they sold 13.2 million in 2008, and 16.1 million in 2007.

“The U.S. Treasury’s $13.4 billion bridge loan to GM, coupled with the separate transaction for GMAC, meets our liquidity needs under the scenarios outlined in our December plan to Congress,” GM spokesman Greg Martin told Bloomberg News yesterday..

GM will use most of the loan to pay unpaid bills from their suppliers. They may also seek a buyer for Saturn and Saab to infuse more cash into the company. In addition to the concessions, the company needs to slash their debt in half, and consolidate dealerships. General Motors will update their status by February 17 with the Treasury Department. They will provide a final copy of their restructuring plan to the government by March 31.

It is unclear why GM CEO Richard Wagoner had not implemented these changes in his ongoing eight-year reign at the top of the company.

If the government does not like what they see, they can order GM to repay the loans immediately. Such a decision would likely plunge the company into bankruptcy.