Obama sets deadlines, expectations for auto industry

WASHINGTON — President Barack Obama said today that neither General Motors nor Chrysler has proposed sweeping enough changes to justify further large federal bailouts, and demanded “painful concessions” from creditors, unions and others as their price for survival.

Obama also raised the possibility of a controlled bankruptcy to help either or both “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.

With his words, Obama underscored 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, and bluntly warning it may pull the plug on either or both companies.

The Bush administration late last year approved $17 billion in federal funds to help GM and Chrysler survive. It also demanded both companies submit restructuring plans that the Obama administration would review.

Even as he pronounced their effort unsatisfactory, the president said the administration will offer General Motors “adequate working capital” over the next 60 days to produce a reorganization plan acceptable to the administration.

He said Chrysler’s situation is more perilous, and the government will give the company 30 days to overcome hurdles to a merger with Fiat, the Italian automaker. If they are successful “we will consider lending up to $6 billion to help their plan succeed,“ he said.

Obama spoke at the White House with the Big 3 standing at yet another crossroads. As the president noted, the industry has shed over 400,000 jobs in the past year as the recession took hold. Officials announced last week bailout funds would be made available to companies that supply the automakers, an attempt to keep them afloat.

Obama said he is committed to the survival of an auto industry — on terms that will allow it to compete internationally.

“But we also cannot continue to excuse poor decisions,“ he said. “And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars.“

He also said some of the industry’s progress has scarcely been noticed. He mentioned that the North American car of the year in 2008 was produced by GM.

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

But that was at the same time he was formally announcing the departure of Wagoner, whom administration officials forced into retirement on Sunday in preparation for the president’s remarks.

“This is not meant as a criticism of Mr. Wagoner, who has devoted his life to this company; rather it’s a recognition that it will take a new vision and new direction to create the GM of the future.“

Other changes at GM include new directors on its board. Fritz Henderson, GM’s president and chief operating officer, became the new CEO. Board member Kent Kresa, the former chairman and CEO of defense contractor Northrop Grumman Corp., was named interim chairman of the GM board.

“The board has recognized for some time that the company’s restructuring will likely cause a significant change in the stockholders of the company and create the need for new directors with additional skills and experience,“ Kresa said in a written statement.

The Obama move comes amid public outrage over bonuses paid to business leaders and American International Group executives — set against a severely ailing economy.

GM failed to make good on promises made in exchange for $13.4 billion in government loans. Chrysler, meanwhile, has survived on $4 billion in federal aid during this economic downturn and the worst decline in auto sales in 27 years. In progress reports filed with the government in February, GM asked for $16.6 billion more and Chrysler wanted $5 billion more.

GM owes roughly $28 billion to bondholders. Chrysler owes about $7 billion in first- and second-term debt, mainly to banks. GM owes about $20 billion to its retiree health care trust, while Chrysler owes $10.6 billion.

GM and Chrysler employ about 140,000 workers in the U.S. In February, GM said it intended to cut 47,000 jobs around the globe, or almost 20 percent of its work force, close hundreds of dealerships and focus on four core brands — Chevrolet, Cadillac, GMC and Buick.

In Richmond yesterday, an auto industry expert at Virginia Commonwealth University said the developments show, “This administration is signaling that it’s not going to pull the plug on GM. The last thing it needs is for GM to fail.“

Wagoner’s ouster is purely symbolic, added VCU’s George Hoffer. “He has become a sacrificial lamb for GM so it can continue to get money.“

Hoffer said Chrysler, which is also looking for more bailout money, probably won’t have a comparable change. “Chrysler is in GM’s backdraft,“ he said. Wagoner had faced few serious challenges to his leadership.

David Cole, chairman of the Center for Automotive Research, said he was disappointed but not surprised.

“One of the things we recognize is that any kind of aid for industry, whether it is the financial or the auto industry, is quite politically unpopular. If you are in the government’s position, you need to be able to show the heads that have come from this.“

Aaron Bragman, an industry analyst from IHS Global Insight, said he wasn’t sure it was the “best idea” for Wagoner to leave now.

“You’re changing captains in the middle of the rapids here,“ Bragman said.

While Wagoner will likely be remembered as the CEO when GM required government aid to stay alive, some successes under his watch include development of the Chevrolet Volt, an electric-drive vehicle slated for the market in late 2010, and a renewed partnership with the UAW that brought about a 2007 labor agreement that significantly changed the company’s cost structure.

Early in his tenure as chief executive, Wagoner outlined a strategy for GM to focus on developing countries where the auto industry still had large potential growth, such as Brazil, Russia and China. By 2005, GM was selling more vehicles overseas than in North America and GM was the No. 1 car company in China, with the Buick brand in China outselling its U.S. base.

But Wagoner could never halt the steady decline of GM’s market share in the U.S. Eddie Stiles of family-owned Luck Chevrolet in Ashland said he was very disappointed to hear of Wagoner’s resignation.
‘ “I though Rick was doing a hell of a job,“ Stiles said. “He brought in some great people . . . he just came in at a difficult period.“

The automaker’s problems started long before Wagoner took the helm, Stiles said.

“GM was criticized for not changing models and being stale,“ he said. “Now they are fresh and changed every three or four years.“

AP writer Philip Elliott in Washington, Richmond Times-Dispatch staff writer Louis Llovio and business editor John Hoke contributed to this report.