WASHINGTON: President Barack Obama yesterday announced his plans for troubled automakers General Motors and Chrysler, which have already been given $17.4 billion by the US government to keep them running.
His administration gave GM and Chrysler failing grades for their turnaround efforts and promised a sweeping overhaul of the troubled companies. The government said it plans to give the automakers more money, but it is also holding out the threat of a “structured bankruptcy.”
A White House task force rejected restructuring plans and pleas for billions in funding from the two automakers, forcing GM Chief Executive Rick Wagoner to step down.
Obama said Wagoner’s departure was a recognition that the company needs new direction but added the government did not want to take charge of GM.
“What we are interested in is giving GM an opportunity to finally make those much needed changes that will let them emerge from this crisis a stronger and more competitive company,” Obama said.
Obama also sought to reassure potential car buyers that possible restructurings through bankruptcy by GM and Chrysler - which received $17.4 billion from the government in December - would not affect auto purchases or put their warrantees at risk.
“In fact, it will be safer than it’s ever been. Because starting today, the United States government will stand behind your warrantee,” Obama said. GM will get funds to keep operating for 60 days, but up to $30 billion in new loans it is seeking will be on hold until it reworks its restructuring plan.
Chrysler, controlled by Cerberus Capital Management, was told to complete a planned alliance with Italy’s Fiat within 30 days or risk liquidation.
“We cannot, we must not, and we will not let our auto industry simply vanish,” the president said during a televised address at the White House. “We cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars.” He said the car firms had run into trouble because of a “failure of leadership - from Washington to Detroit.”
Talking of the restructuring plans already submitted by the carmakers, Obama said: “After careful analysis, we have determined that neither goes far enough to warrant the substantial new investments that these companies are requesting.”
The president also said he would work with Congress on a program to encourage consumers to replace old, less fuel efficient cars with newer, cleaner vehicles.
GM has already announced tens of thousands of job cuts and a number of factory closures in order to cut costs that have spiraled out of control as sales have slumped during the economic downturn.
Observers say that for too long, GM’s board of directors continued their support for CEO Wagoner, even as the company piled up billions of dollars in losses and begged for government loans to stay alive.
It is not yet clear whether Wagoner, 56, who spent 32 years with GM working all over the world, will step aside or leave the company. The company said in a statement earlier in the day that he will be replaced as CEO by Fritz Henderson, the company’s vice chairman and chief operating officer.
If Wagoner does leave the company he is entitled to a multimillion-dollar pension that the government does not want to pay.
Wagoner presided over some of the biggest losses in GM history. In 2002, the company had predicted that it would earn $10 a share by the middle of the decade.
Instead, GM lost $30.9 billion in 2008, when its per-share loss translated to more than $50 a share.
The White House’s emphatic rejection of the automakers’ plans and further trouble for banks in Europe sent world stocks tumbling and lifted government bonds.
The Dow Jones industrial average was off 3.3 percent by midday following stock market falls in Europe and Tokyo that sent world indexes to a one-week low. GM shares were off 20 percent after falling as much as 30 percent.
Chrysler and Italian maker Fiat Motor SA said yesterday they had reached a deal in principle on a new partnership, less than two hours after the US government said the merger was the only way for Chrysler to keep its emergency loans.
Chrysler chief executive Bob Nardelli, announcing the agreement, said the alliance would help the US carmaker preserve jobs and build more fuel-efficient cars.
