General Motors Corp (GM) received its first multibillion dollar loan installment from the US Treasury Department on Wednesday night — in time to avert a financial disaster in which the struggling automaker may have been unable to sustain operations and pay suppliers.
The “Treasury today finalized the loan transaction for GM and funded the first tranche of [US]$4 billion,” US Treasury spokeswoman Brookly McLaughlin said in a written statement.
The funds are the first portion of US$9.4 billion in low-cost loans that GM is expected to receive from the government.
The Detroit automaker had been working feverishly with Treasury officials to close on the first loan installment. The money will be available for GM to use almost immediately.
The cash-strapped Detroit company plans to use the money for continuing its operations.
GM is obligated to a make a large payment to a major supplier early this month, but has declined to offer details on the amount of money it owes or to which supplier.
“We appreciate the Administration extending a financial bridge to GM at this critical time for the U.S. auto industry,” GM said in a written statement shortly after the US Treasury announcement. “We are committed to successfully executing the viability plan we submitted on December 2 and remain confident in the future of General Motors.”
The loans come from the US$700 billion bank rescue plan, approved by Congress in September.
US President George W. Bush said earlier this month that the ailing automakers could tap part of those funds in the form of low-interest loans.
GM is burning through approximately US$33 million a day, based on spending US$1 billion per month during the third quarter. That daily amount is likely lower for the fourth quarter as GM has reduced spending on operations, sponsorships, utilities and even office supplies.
GM previously said it might not make it through the end of the year before running out of cash without government aid.
Auburn Hills, Michigan-based Chrysler LLC is expecting US$4 billion in cash as well, but the Treasury has yet to announce the closing of the first round of loan money.
“We’re working expeditiously with Chrysler to finalize that transaction and we remain committed to closing it on a timeline that will meet near term funding needs,” McLaughlin said.
Chrysler is nearing the minimum level of cash — US$2.5 billion — it needs to operate. It is already fending off angry parts suppliers and other vendors demanding cash payments on delivery. It generally pays suppliers US$7 billion every 45 days.
Chrysler issued a statement on Wednesday night, updating the status of its talks with the Treasury Department.
“We recognize the magnitude of the effort by the Treasury Department to complete these multiple financial arrangements quickly and sequentially,” the company wrote in a press release. “The discussions relating to Chrysler have been positive and productive, and we look forward to finalizing the details of our financial assistance in the immediate future.”
Dearborn, Michigan-based Ford Motor Co said it did not intend to use government money to fund operations, as it is in a better financial position than its competitors.
The Detroit automakers are trying to weather the biggest auto sales slump in more than 26 years.
Shares of GM fell 15.8 percent on Wednesday, or US$0.60 to US$3.20, before the Treasury’s announcement. Shares of Ford closed unchanged at US$2.29.