Automakers Back From Brink

"We expect GM to quickly run through the funds and to need additional multibillion dollar funding just to meet 2009 needs during what looks like an auto depression," Levy wrote. "We view the news as good for suppliers, as it provides a lifeline to automakers, but industry outlook remains extremely challenging."

Fitch Ratings on Friday downgraded debt at both GM and Chrysler, saying bankruptcy remains a threat to both. In both cases, it downgraded issuer default rating to C, indicating that "default is imminent" despite the bailout.

The loan package envisions a debt-for-equity swap as a means to reduce debt. That "is expected to take the form of a distressed debt exchange, which is a default under Fitch's methodology, although how the exchange is to be accomplished remains highly uncertain," wrote analyst Mark Oline. "The threat of a bankruptcy remains, given the terms of the federal assistance, and the maturity."

In his speech, Bush made it clear that bankruptcy remains an option. He pointed out that GM and Chrysler "have not made the legal and financial preparations necessary to carry out an orderly bankruptcy proceeding that could lead to a successful restructuring" and said "the convergence of these factors means there's too great a risk that bankruptcy now would lead to a disorderly liquidation of American auto companies.

"A more responsible option is to give the auto companies an incentive to restructure outside of bankruptcy -- and a brief window in which to do it," he said.