Obama 88 248.
(photo credit: AP)
President Barack Obama declared Monday that General Motors and Chrysler restructuring plans were too little too late, leaving him no choice but to push out GM's chief executive and set a one-month deadline for Chrysler to merge with Italy's Fiat SpA.
Obama, who was stepping into the American industrial sector with a force not seen in generations, also raised the possibility of a controlled bankruptcy to help either or both companies to "restructure quickly and emerge stronger" - uttering the term that industry and union officials have warned repeatedly could lead to the collapse of an entire domestic industry.
But Obama sought to soften the blow.
"What I am not talking about is a process where a company is broken up, sold off, and no longer exists," Obama said. "And what I am not talking about is having a company stuck in court for years, unable to get out."
As the US economic recession deepened and the auto giants sought more taxpayer money, the president was performing radical surgery.
Underscoring the extent to which the government is now dictating terms to two of the country's iconic corporations - forcing the departure of Rick Wagoner as CEO of General Motors, Obama bluntly warned the administration may pull the plug on either or both companies.
Dating to his days as a presidential candidate, Obama had been openly critical of the US auto industry, voicing deep dissatisfaction with the way it has done business.
Declaring he would no longer "excuse poor decisions" as the companies tried to survive on "an unending flow of tax dollars," Obama said, "These companies and this industry must ultimately stand on their own, not as wards of the state."
The president acknowledge the pain being felt by Americans caught in the dizzying decline of the industry and blamed "a failure of leadership from Washington to Detroit that led our auto companies to this point." However, Obama said his administration would try to encourage Americans to buy more US-made cars by offering some tax incentives to new buyers.
Obama stepped in after deciding General Motors Corp. and Chrysler LLC had submitted unacceptable plans in return for billions more dollars they said was needed to stay in business. The struggling companies were already being kept afloat with huge emergency government rescue loans. GM had received $13.4 billion; Chrysler $4b.
On Wall Street, uncertainty about the industry sent stocks tumbling. By midday Monday, all the major indexes fell more than 3.5 percent, including the Dow Jones industrial average.
The president said the restructuring plans submitted by the companies, which employ about 140,000 workers in the United States, did not merit continued taxpayer help and needed to do much more. Tens of thousands of more jobs could be in jeopardy in associated industries and businesses.
Ford Motor Co., the third of the industry's Big Three, has taken no government money and is not affected.
In return for the forced resignation of CEO Rick Wagoner and a shake-up in the auto giant's board, the administration will provide GM 60 days of operating money to work out an acceptable restructuring in the face of an inevitable bankruptcy should it fail.
At GM, president and chief operating officer Fritz Henderson will take over as CEO, the company said in a statement released early Monday. Board member Kent Kresa, the former chairman and CEO of defense contractor Northrop Grumman Corp., was named interim chairman of the GM board.
New directors will make up the majority of GM's board, the statement said. The directors who will be replaced have not yet been named.
Chrysler's proposed deal with Fiat would give the Italian company a 35 percent stake in the US automaker and entree into the American market. In return, Chrysler would get badly needed small-car technology.
General Motors, meanwhile, will have a limited window to work with the United Auto Workers union, bondholders and other stakeholders. Failure in those negotiations could lead to a forced, fast-track bankruptcy.
The administration planned to send a team to Detroit to help with the restructuring during the next 60 days. With Wagoner's departure, new management would be decided by General Motors' board of directors in consultation with the government. An official said a majority of the GM board was expected to step down.
Both companies are trying to reduce their debt by two-thirds and persuade the United Auto Workers union to accept several cost-cutting measures.
Under the terms of a loan agreement reached during George W. Bush's administration, GM and Chrysler were pushing the UAW to accept shares of stock in exchange for half of the payments into a union-run trust fund for retiree health care. They also want labor costs from the union to be competitive with Japanese automakers with US operations.
Neither GM nor Chrysler have deals with the union on the trust funding or concessions from their debtholders and the administration has been trying to accelerate those efforts.
GM owes roughly $28b. to bondholders. Chrysler owes about $7b. in first- and second-term debt, mainly to banks. GM owes about $20b. to its retiree health care trust, while Chrysler owes $10.6b.