White House: GM, Chrysler Not Viable

In this June 26, 2008 file photo, then Democratic presidential candidate, Sen. Barack Obama D-Ill., left, talks with General Motors Chairman Rick Wagoner during an economic discussion in Pittsburgh. AP PHOTO

The White House says neither General Motors nor Chrysler submitted acceptable plans to receive more bailout money, setting the stage for a crisis in Detroit and putting in motion what could be the final two months of two American auto giants.

President Barack Obama and his top advisers have determined that neither company is viable and that taxpayers will not spend untold billions more to keep the pair of automakers open forever. In a last-ditch effort, the administration gave each company a brief deadline to try one last time to convince Washington it is worth saving, said senior administration officials who spoke on the condition of anonymity to more bluntly discuss the decision.

Mr. Obama was set to make the announcement at 11 a.m. Monday in the White House's foyer.

In an interview with broadcast Sunday, Mr. Obama said the companies must do more to receive additional financial aid from the government.

"We think we can have a successful U.S. auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge - at the other end - much more lean, mean and competitive than it currently is," Mr. Obama told Face The Nation host Bob Schieffer.

On Monday, Schieffer told CBS' The Early Show that the president took these actions "to let people know that he takes seriously their concerns" over the auto industry.

Frustrated administration officials said Chrysler cannot function as an independent company under its current plan. They have given Chrysler a 30-day window to complete a proposed partnership with Italian automaker Fiat SpA, and will offer up to $6 billion to the companies if they can negotiate a deal before time runs out.

If a Chrysler-Fiat union cannot be completed, Washington plans to walk away, leave Chrysler destined for a complete sell-off. No other money is available.

Shawn Morgan, a Chrysler spokeswoman, said the company wants to work with the Treasury Department and Mr. Obama's auto task force but declined to comment on the White House's plans.

"With the administration's announcement on the restructuring of the automotive industry imminent, it would be inappropriate to comment on speculation," Morgan said in a statement early Monday morning.
Watch President Obama's interview on Face The Nation

For GM, the administration offered 60 days of operating money to restructure. A frantic top-to-bottom effort began Sunday after CEO Rick Wagoner resigned under pressure from the White House.

Senior Obama administration officials told CBS News that Wagoner was asked to resign because General Motors needed a fresh start, and a change in leadership was required for GM to have a clean slate.

The book on Wagoner, according to several auto industry experts, was that he knew how to make cars but not how to crack heads with the union, reports CBS News correspondent Tony Guida.

One expert told Guida that Wagoner, as recently as January, did not agree that the UAW contract was too rich. And it appears that with this move, Obama is sending a message to the auto industry and the union: "If you want more taxpayer money, get serious about cutting costs."

Look at the current predicaments of GM and Chrysler this way: both companies are in a high-stakes poker game and both are down to their final stack of chips - borrowed chips - more than $17 billion worth of taxpayer money, handed over by the Bush administration in return for fundamental restructuring.

"GM and Chrysler were required to turn their debt into equity and reduce labor costs," says University of Maryland economist Peter Morici.

The move to push Wagoner out at GM raises many questions tonight, Guida reports, not the least of which is why?

After all, the administration is bailing out the banks with many times the billions that the auto industry is asking for but no bank CEOs have been forced to quit.

Kent Kresa, Former Chairman and CEO of Northrop Grumman and a senior advisor to the Carlyle Group, will serve as interim Chairman, and current GM President Fritz Henderson will serve as CEO, the administration said.

One official said a majority of the GM board was expected to step down.

Under the existing loan agreements, approved by the Bush administration, there was a requirement that the Obama administration make a determination on the viability of the companies by March 31. On Feb. 17, both companies made viability submissions, and requested additional aid.

Obama advisers saw public outrage come to an ugly head in recent weeks, as populist anger escalated over bonuses paid to American International Group executives. They realized Americans are frustrated with the economy and its business leaders; they also said they would not invest one dollar more than was necessary to keep the companies alive and would walk away if it looked impossible.

Officials said GM had not made good on promises made in exchange for $13.4 billion in government loans, although there are no plans to call in those loans.

Administration officials still believe GM's chances are good, given its global brand and its research potential. Officials say they are confident GM can put together a plan that will keep production lines moving in the coming years. They planned to send a team to Detroit to help with that restructuring.

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. The White House balked and instead started a countdown clock.

Administration officials acknowledged the short turnaround time was harsh; one described it as a nanosecond in a business cycle.

Two people familiar with the plan said officials will demand further sacrifices from the automakers and bankruptcy would still be possible if the automakers failed to restructure. Those officials spoke on condition of anonymity because they were not authorized to make details public.

Administration officials said they hoped large-scale bankruptcy could be avoided, especially if it might be stretched over many years. Any efforts to use the bankruptcy courts would have to be targeted and aggressive and must not prolong a restructuring process, they said.

GM and Chrysler, which employ about 140,000 workers in the U.S., faced a Tuesday deadline to submit completed restructuring plans, but neither company was expected to finish its work. The White House's plan renders them, as well as a potential discussion about the companies' borrowed money, moot.

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.

An exasperated administration official noted that the companies had not done enough to reduce debt; in some cases, it actually increased during this restructuring and review process.

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 an effort to bolster consumer confidence, Mr. Obama planned to announce government backing of warranties for GM and Chrysler vehicles. An administration official said there is no price tag yet associated with that promise.

Aides note that Mr. Obama inherited the auto mess from his predecessor, President George W. Bush.

Under the terms of a loan agreement reached during the last administration, GM and Chrysler are pushing the United Auto Workers 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 U.S. operations.

Little progress has been made between the companies and the union.
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