U.S. Government to Take Substantial Stake in Automakers

The White House and Democratic leaders in Congress are getting close to an agreement on the outlines of a compromise measure to help the failing U.S. automakers.

From the Wall Street Journal:

Congress and the White House inched toward a financial rescue of the Big Three auto makers, negotiating legislation that would give the U.S. government a substantial ownership stake in the industry and a central role in its restructuring.

Under terms of the draft legislation, which continued to evolve Monday evening, the government would receive warrants for stock equivalent to at least 20% of the loans any company receives. The company also would have to agree to limits on executive compensation and dividend payments, much like those contained in the government’s $700 billion rescue of the financial industry.

In the case of General Motors Corp., such a move could give the government a large stake in the company and may hurt existing shareholders. GM is seeking about $10 billion in short-term loans and has a market capitalization of about $3 billion. The legislation didn’t specify what kind of stock the government would take, leaving open the option it could be preferred, common, voting or nonvoting.

The legislation under discussion would be overseen by an official, tapped by President Bush, whom lawmakers describe as an “auto czar.”

The size of the package is expected to be about $15 billion, falling short of the $34 billion General Motor (GM), Ford Motor (F) and Chrysler LLC requested.

About Ron Haruni 1036 Articles
Ron is the Co-Founder & Editor in Chief of Wall Street Pit. Web Site: Wall Street Pit

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