US automakers await bailout verdict today

Congressional Democrats and the Republican White House came close to an agreement on the $15-billion rescue package to bail out the Big Three auto makersn in a deal that involves giving the US government a substantial ownership stake in the three auto makers as well as greater oversight by appointing a federal 'car czar' to implement the restructuring plans presented by them to the US Congress in exchange for tax payers money.

With a vote for the $15 billion rescue package most likely to take place today, it is still not clear whether the outgoing president will be able to muster enough Republican support to push the bill through in the Senate where a minimum of 60 votes is required for it to advance.

General Motors, Ford and Chrysler jointly have asked for $34 billion in loans with GM needing an immediate cash infusion of $4 billion before the end of December to avoid bankruptcy.

The draft bill envisages that the government would receive warrants for stock equal to at least 20 per cent of the loan any auto maker receives, which allows the taxpayer to profit if its share prices rise. The bill will also bar shareholder dividends during the duration of the loan period and has limits on executive compensation and golden parachutes.

The short-term loans will come out from the existing $25-billion programme created to help the industry make green cars and the loans are of seven-year terms and carry an interest rate of 5 per cent for the first five years and 9 per cent thereafter.

The bill is more or less the same as the government's $700-billion rescue package for the financial industry except that in this case the bill is silent on the issue of rolling of heads of the automakers who avail of government aid, which was done in the case of the financial industry's bailout.