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Monday, December 29, 2008
GM, Chrysler to Get First Round of Treasury Loans
Joanna Ossinger
FOXBusiness
General Motors (GM) and Chrysler are scheduled to get loan money Monday from the U.S. Treasury Department, according to the terms of their agreement.
Both companies are eligible for $4 billion as of Monday, the closing date of the agreement. GM is eligible for another $5.4 billion as of Jan. 16, and an extra $4 billion as of Feb. 17.
The funds are to be used for “general business purposes,” according to the terms, and the loans expire of Dec. 29, 2011.
A GM spokeswoman didn't immediately return a call asking about the status of the loan. Chrysler's media-relations mailbox was full and a message couldn't be left. Representatives of Cerberus Capital Management, the private-equity firm that owns Chrysler, did not immediately return a call for comment.
The auto makers convinced the Treasury Department that they needed this money with tales of woe amid an extraordinary economic downturn. Some were saying GM could be bankrupt by the end of 2008 if it didn’t get access to a cash infusion.
The third of the so-called Big Three, Ford Motor (F), said it didn’t need a loan at this time -- though it said it was struggling as well. Even companies such as Toyota Motor(TM) and Honda Motor (HMC) have been feeling the economic pinch.
While there are no specific plans for further cash infusions, many economists think that this problem is far from over, and that the U.S. auto industry could need $100 billion or more before it recovers.
The companies face a rough time ahead -- consumers are tightening their belts as the recession takes hold. Even those who want to buy cars sometimes aren’t able because credit is so tight and they can’t get the needed loan. On top of that, there are a lot of fixed costs, such as health and pension agreements with the United Auto Workers union.
Extra requests for money would be tough for lawmakers to refuse, as the auto industry provides hundreds of thousands of U.S. jobs, directly or indirectly. But with so much money already doled out in the bailout saga, and the attention of the new administration likely to be on efforts such as its infrastructure-improvement plan, they may have to do some more persuasion to get money from President Obama and the new Congress.
FOX Translator
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Most folks judge the health of a business by the revenue that comes in through sales. But not all revenue is equal. Companies can grow their sales by buying other companies, which means you don't get a clear view of how the real sales trends are moving.
So, many analysts, particularly those who look at retail, try to gauge what¿s known as "organic" growth, by looking at same-store sales. These are sales only at outlets open more than a year, so the metric can exclude any sales jump that comes from opening new locations. Retailers release same-store sales (which are frequently called "comps" since they're a true comparison from the previous period) every month.
Retail, incidentally, isn't the only industry to look at same-store sales. Hospital companies, also use the metric, to gauge how existing hospitals are performing compared to ones they just built or acquired.
