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Summary of President Bush's Bailout Plan for Auto Companies

Orderly Restructure


Updated August 21, 2013

The auto-industry bailout saga came to an end, at least temporarily, on December 19th, 2008, when President Bush announced a $13.4 billion bailout from TARP funds. While still against the notion of using TARP funds for such a bailout, the President acknowledged the unique circumstances affecting the Detroit auto companies and the disastrous consequences that could result from their disorderly bankruptcies.

The administration backs the idea of orderly bankruptcies for the auto companies, but the crisis was simply too urgent to get the necessary pieces in place. Therefore, the bailout with TARP funds will proceed. In some respects it is a temporary bailout. The auto companies are receiving approximately half of the $34 billion they determined was needed. The bailout averts the immediate crisis, however, while positioning the companies to survive until President-Elect Obama is in office and/or they can better accomplish the orderly bankruptcy President Bush envisions.


GM and Chrysler will receive $13.4 billion in low-interest loans from TARP funds. GM will receive $4 billion on 12/29/09 and another $5.4 billion on 1/16/09. Chrysler will receive $4 billion.

Note: The bailout plan authorizes another $4 billion in loans from TARP funds with congressional approval upon the submission of restructuring plans by the auto companies on 2/17/09.


The bailout plan adopted a lot of the terms discussed by congress and/or included in the failed legislation. In addition to setting restructuring benchmarks, the bailout plan requires the loans be paid back before any other debt and that the government receive stock options equivalent to 20% of the loan amounts. It also places limits on executive compensation and the use of corporate jets.

In addition, the plan sets out targets to be achieved by the car companies. They car companies must work to:

  • Reduce debts by 2/3 via a debt-for-equity exchange

  • Make one-half of VEBA payments in the form of stock.
    Note: VEBA stands for Voluntary Employee Benefit Association. It is the union-administered fund that is supposed to take over retiree health care benefits from the auto companies. The big-three auto companies are scheduled to make three payments into it.

  • Eliminate the job banks.
    Note: Thetruthaboutcars.com provides a good job bank description.

  • Negotiate work rules that are competitive with transplant auto manufacturers by 12/31/09.

  • Negotiate wages that are competitive with those of transplant auto manufacturers by 12/31/09.


Secretary of the Treasury, Henry Paulson, will act as the Presidential Designee. He will have authority to block any transaction larger than $100 million. In addition to the restructuring plans, the auto companies must submit weekly status reports and monthly certifications to him.

Important Dates and Requirements:

The auto companies must submit restructuring plans to Secretary Paulson by 2/17/09. The plans must contain inroads regarding the targeted labor-agreement and VEBA modifications, as well as progress regarding the debt to bond exchange.

The loans can be called back if the companies haven’t met the plan’s conditions by 3/31/09. Failure to meet the conditions will accelerate repayment of the loans and effectively give the government the ability to force the companies into bankruptcy. Conditions include the following:

  • The companies must achieve “positive net value.”

  • The companies must obtain new agreements with stakeholders, including concessions from the UAW and new agreements with creditors, dealers and suppliers.

More Information:

  • Bush comes to automakers' rescue by Todd Spangler and Justin Hyde (Note: Link no longer available) / Detroit Free Press (12/19/08)
  • Autos Bailout Fact Sheet as reprinted by the Wall Street Journal (12/19/08)
  • Bailout offers brief reprieve for automakers by Roland Jones (12/19/08)
  • Chrysler and GM Term Sheets (Note: Link no longer available) / Press Room of the U.S. Department of Treasury
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