Canada says GM, Chrysler plans are inadequate but still awards loans, Obama says GM, Chrysler could use short-term bankruptcy

The Canadian government announced plans today to offer GM, Chrysler up to $4 billion in bridge loans to continue operations.

Under the announced plan today, the Canadian government will earmark $1 billion for Chrysler, $250 million of witch will become available immediately, and an additional $500 million by sometime in April. Part of the deal, Chrysler must interest notes equal to 6.67% of the aggregate loan.

GM would receive the remaining $3 billion. 

Ford maintains it will not require additional aid from the U.S. government.

Under the plan, the companies would be required to maintain the proportional 20% of total North American production.

It appears the Canadian government will not require any executives to withdraw their posts. Yesterday, the White House forced GM CEO Rick Wagoner out.

Canadian Industry Minister Tony Clement stressed the importance of awarding the loans and said “if the money had not been forwarded today, [Chrysler] would not have been able to meet payroll today,” Clement also said that the companies have not done enough to ensure viability.

GM continues to try to cut costs in Canada, most recently striking a deal with CAW (Canadian Automobile Workers Union) to decrease hourly wages by $7. GM maintains that is not enough and wants more sacrifices to increase competitiveness.

Today, U.S. President Obama for the first time said the carmakers could go bankrupt, and even suggested GM and Chrysler could both use short-term bankruptcy as part of their restructuring.

In most recent numbers, U.S. auto sales in February 2009 were down 41% to 688,909 cars, the lowest monthly sales figures since 1981.

According to the U.S. Treasury, GM employees 240,000 workers and Chrysler employees over 50,000 people.

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Hercules holds a B.Comm Finance from Ryerson University in Toronto, Canada. He is a Chartered Financial Analyst (CFA) level 3 candidate. He was previously a contributor at FiLife, a finance website owned by Dow Jones and IAC. Write to [email protected]
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