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TheStreet Open House

Automakers Back From Brink

Updated from 1:50 p.m.

The automakers will sidestep bankruptcy, at least in the near term.

Saying "Chapter 11 is unlikely to work for the American automakers at this time," President George Bush unveiled a $17.4 billion bailout plan for General Motors (GM - Get Report) and Chrysler, which face imminent liquidity problems.

Though he suggested bankruptcy as an alternative earlier in the week, Bush appeared to back away Friday, buying into the industry's fervent belief that consumers would be unlikely to buy cars from an automaker operating under Chapter 11.

"If we were to allow the free market to take its course now, it would almost certainly lead to disorderly bankruptcy and liquidation for the automakers," he said. "These are not ordinary circumstances."

President-elect Barack Obama backed the plan at a later news conference announcing some of his new cabinet members. He said a failure of the automakers "would have had a devastating effect" on the economy and workers.

GM will receive $4 billion on Dec. 29 and $5.4 billion on Jan. 16. It will receive $4 billion more in February, if Congress agrees to release the second half of the funding for the Troubled Asset Relief Program. Chrysler, meanwhile, will get $4 billion on Dec. 29.

Both companies must submit plans that assure long-term, viable restructuring strategies, or they will have to quickly repay the money. Additionally, they must reduce their debt obligations by two-thirds and reach an agreement with the United Auto Workers to cut wages and benefits that are competitive with those at foreign automakers' U.S. plants.

Shares of GM surged Friday morning, but pulled back in the afternoon, when they were trading up about 11% to 4.05. Shares in Ford (F - Get Report) were trading about 1% higher to $2.87. Unlike its peers, Ford says it does not face an immediate liquidity crisis.

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SYM TRADE IT LAST %CHG
F $16.16 1.13%
GM $37.68 0.99%
AAPL $126.37 2.53%
FB $83.20 -0.13%
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