(Corrects amount of stimulus package in last paragraph.)
March 30 (Bloomberg) -- President Barack Obama said General Motors Corp. and Chrysler LLC must survive without becoming “wards of the state” and the companies have one last, limited chance to “fundamentally restructure.”
After his administration forced GM Chief Executive Officer Rick Wagoner to resign and pressed Chrysler to form a partnership with Italy’s Fiat SpA to get more taxpayer aid, Obama today said that company creditors, shareholders, workers, dealers and suppliers will be expected to make more sacrifices.
“We cannot and must not, and we will not let our auto industry simply vanish,” the president said at the White House, announcing new and final deadlines for the No. 1 and No. 3 U.S. automakers to remake themselves. “We cannot continue to excuse poor decisions. We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars.”
If plans for automakers fail, the administration is prepared to let them slide into a structured bankruptcy that he said would make it easier for GM and Chrysler to clear away old debts and emerge as smaller, leaner operations.
The administration forced the resignation of Wagoner before announcing its conditions for continued support. Fritz Henderson, GM’s president and chief operating officer becomes CEO. GM also is replacing most of its board and must increase reliance on producing more fuel-efficient vehicles, under findings of the administration’s auto task force. Chrysler CEO Robert Nardelli was allowed to keep his position.
‘New Vision’ Needed
“This is not meant as a condemnation of Mr. Wagoner, who has devoted his life to this company,” the president said. “Rather, it’s a recognition that it will take new vision and new direction to create the GM of the future.”
GM will get “adequate working capital” over the next 60 days, during which time the administration’s auto task force will work with the company to assess whether the company has consolidated enough brands and its debt load.
Obama said conditions at Chrysler are “more challenging,” and a review of the No. 3 automaker shows “that Chrysler needs a partner to remain viable.”
GM plunged 58 cents, or 16 percent, to $3.04 at 11:17 a.m. in New York Stock Exchange composite trading. The shares tumbled 87 percent last year, the most among the 30 stocks in the Dow Jones Industrial Average.
Market Conditions
The removal of Wagoner and the demand that Chrysler ally with Fiat underscore the administration’s conclusion that the automakers had not done enough to prove they can survive amid the worst U.S. auto market in 27 years. The moves also reflect growing criticism of government bailouts.
Obama said the government “has no interest or intention or running GM. What we are interested in is giving GM an opportunity” to emerge from its financial crisis.
Obama announced he’s giving automakers a grace period, a limited number of days to work with creditors, unions, and other stakeholders to “fundamentally restructure” in a way that justifies further aid.
During this time, he said, carmakers “must produce plans that would give the American people confidence in their long- term prospects for success.”
Bankruptcy Option
Obama said the bankruptcy code, if required, wouldn’t be used to break up the companies. Instead, the companies would use the code, with the backing of the government, to clear away old debts “so they can get back on their feet.”
Obama addressed industry workers, a crucial constituency, saying that while there may be more pain to come, “I will fight for you. You are the reason I am here today.”
He said he’s appointing Edward Montgomery, a former deputy Labor Department secretary “to cut through red tape and ensure that the full resources of our federal government are leveraged to assist the workers, communities, and regions that rely on our auto industry.”
Obama said he was also using the government’s $787 billion stimulus program to accelerate purchases of government cars and would work with finance companies to increase credit to consumers and dealers. At the same time, the Internal Revenue Service will conduct a campaign to alert consumers of a new tax benefit for auto purchases made between February 16th and the end of this year. It may lead to as 100,000 new car sales, the president said.
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