GM's chief gone, but problems remain

March 30, 2009 10:21:43 AM PDT
President Obama announced Monday that Chrysler and General Motors will not get the additional $21.5 billion they requested in February because his administration has determined the companies' viability plans are inadequate. Obama said he recognized that with this decision, his administration is asking these companies, unions and workers to make difficult choices and "painful concessions."

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"We cannot, we must not, and we will not let our auto industry simply vanish," he said. "But we also cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars. These companies and this industry must ultimately stand on their own, not as wards of the state."

The administration is giving these companies just weeks to develop new strategies for survival, and on Friday leaders of the president's auto task force asked General Motors' CEO Rick Wagoner to tender his resignation, which he did.

But he added, "Let me be clear: the United States government has no interest or intention of running GM."

The president struck a balance between realism about the dire state of the auto industry and optimism that with a further restructuring, the industry will rebound and launch "a new beginning for a great American industry."

"There are jobs that cannot be saved. There are plants that will not reopen," he said.

Obama also said, "I am absolutely committed to working with Congress and the auto companies to meet one goal: the United States of America will lead the world in building the next generation of clean cars."

Administration Officials: GM Plan 'Not Viable'

Senior administration officials said that the General Motors plan, in its current form, "is not viable and will need to be restructured substantially."

The good news for General Motors, which has already received $13.4 billion in loans, is that the Obama administration is slightly less pessimistic about its chances of surviving. Officials concluded that General Motors' game plan "is not viable as it is currently structured," but they believe the company could come up with a credible plan with more aggressive restructuring.

"They're not quite there yet," Obama said Sunday.

Wanting a fresh start, leaders of the president's auto task force told Wagoner to tender his resignation, which he agreed to do. The company needed to turn a new page, a senior administration official explained.

Obama stressed this morning that the move was not intended as a "condemnation" of Wagoner, a 30 year veteran of General Motors, but rather "a recognition that it will take a new vision and new direction to create the GM of the future."

Another official insisted there was no quid pro quo requiring Wagoner to leave if the company wanted further government support.

Message for Chrysler More Discouraging

In addition to Wagoner's departure, GM will start the process of replacing a majority of its board in the next few months.

General Motors now has 60 days to develop a "leaner, more conservative but in some ways more aggressive business plan," as one administration official put it. The White House wants a General Motors' plan that more aggressively tackles its debt and its underperforming dealers and brands, and is more realistic about sales.

Obama said that over this period, the White House will work closely with General Motors to develop a better business plan.

"They must ask themselves: have they consolidated enough unprofitable brands? Have they cleaned up their balance sheets or are they still saddled with so much debt that they can't make future investments? And above all, have they created a credible model for how to not only survive, but succeed in this competitive global market?" Obama asked.

"We are very confident that General Motors can survive and thrive as a company," a senior official says. "We believe it has many, many assets including its global brand. Its R&D has made a lot of progress" in making cars "more attuned to marketplace."

The Obama administration's message for Chrysler is more discouraging. It's essentially merge or die, and you have 30 days to come up with a plan.

The president said that the White House auto task force determined that Chrysler must seek a partner in order to stay viable.

An administration official said the White House believes that Chrysler's plan is "not likely to lead to viability on a stand-alone basis," and assailed "the inferior quality of its existing product portfolio" and over-reliance on trucks.

The administration is urging the company to merge with Fiat and will offer capital to help bring that about. If Chrysler and Fiat are able to reach an agreement, the administration will consider loaning up to $6 billion to Chrysler. If the two companies cannot reach an agreement, the offer will be withdrawn.

"We will not be able to justify investing additional tax dollar to keep Chrysler in business," Obama said.

The Obama administration would not specify how much capital it might entail to keep either company going for another 30 to 60 days. Bankruptcy is still a possibility for both companies, officials said.

"Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way," an administration official said, explaining that a structured bankruptcy process could make it easier for GM and Chrysler "to clear away old liabilities so they can get on a path to success while they keep making cars and providing jobs in our economy."

Obama to Announce Feds Will Back GM and Chrysler Warranties

Obama stressed that point and said that bankruptcy does not mean dissolving the companies. "What I am not talking about is a process where a company is broken up, sold off, and no longer exists. And what I am not talking about is having a company stuck in court for years, unable to get out," he said.

Obama made it clear right at the start of his announcement that the blame was not to be placed at the feet of the American auto workers. Instead, he pointed the finger at "a failure of leadership from Washington to Detroit" that drove the industry to these depths.

"The pain being felt in places that rely on our auto industry is not the fault of our workers, who labor tirelessly and desperately want to see their companies succeed. And it is not the fault of all the families and communities that supported manufacturing plants throughout the generations."

Obama warned workers from the struggling industry that he cannot promise that the toughest days are behind us, but he can promise to fight for their interests.

"You are the reason I am here today. I got my start fighting for working families in the shadows of a shuttered steel plant and I wake up every single day asking myself what I can do to give you and working people all across this country a fair shot at the American dream."

The president is also expected to make two other key announcements today.

First, Obama announced a government-backed warranty program for all new GM and Chrysler vehicles purchased during this reconstructing period.

A fund will be set up equal to 125 percent of the total cost to pay for warranty service. The automakers will contribute 15 percent while the government will provide 110 percent, with the money coming from the economic stabilization funds. A separate company will hold the funds and pay the claims even if one of the auto manufacturers goes into bankruptcy or goes out of business.

Second, Obama announced that Edward Montgomery will serve as director of recovery for autoworkers and communities. Montgomery, a labor economist and former deputy secretary of labor, will coordinate the administration's efforts to help autoworkers, communities and regions adversely affected by the failure off the automakers to find new jobs, businesses and industries.

Obama compared this new position to a federal coordinator appointed after a natural disaster.

"When a community is struck by a natural disaster, the nation responds to put it back on its feet. While the storm that's hit our auto towns is not a tornado or a hurricane, the damage is clear, and we must respond," he said.

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