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Obama Lays Out Plan For Detroit's Survival

President Barack Obama said Monday 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.

Mr. 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.

"We cannot, we must not, and we will not let our auto industry simply vanish. This industry is, like no other, an emblem of the American spirit; a once and future symbol of America's success," Mr. Obama said in remarks made from the White House.

He quickly added: "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."

Also, Mr. Obama said the IRS will start notifying consumers who purchased cars after Feb. 16 that they can deduct the cost of any sales and excise taxes. The program would remain in effect till year's end.

Mr. Obama says he wants to work with Congress to use parts of the economic stimulus package to fund a program that would allow consumers to get a "generous credit" when they replace an older, less fuel-efficient car and buy a new, cleaner car.

With his words, Mr. 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 Michigan-based companies.

"Our auto industry is not moving in the right direction fast enough to succeed," Mr. Obama said.

Some analysts say the White House now has unprecedented control over a major industry, reports CBS News Chief White House Correspondent Chip Reid.

"They are now relying on the government to bail them out and when that happens, guess what, you gotta do what the government wants!" says auto industry analyst John McElroy.

In Congress, even many Michigan members reluctantly support the president's "tough love" approach, Reid reports.

Some, though, complained about a double standard - one for auto executives another for CEOs of the major banks.

"The president had all the CEOs of the financial institutions pledging to work them, hosting them at the White House and at the same time, Mr. Wagoner goes," said Rep. Thaddeus McCotter (R - Mich.)

GM and Chrysler both employ thousands in Ohio, the No. 2 state for vehicle production after Michigan.

Fears of an automaker bankruptcy pushed stocks down more than 200 points in early trading on Wall Street.

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.

Mr. 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.

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

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."

In a statement released Monday, Wagoner said simply of his meeting with the Obama administration: "They requested that I 'step aside' as CEO of GM, and so I have."

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.

Read Katie Couric's interview with Fritz Henderson
"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.

Detroit was in shock Monday as GM workers worried about their jobs, reports CBS News Business Correspondent Anthony Mason.

"Where you gonna get a job when there's 12 percent unemployment?" asked Scott Smith.

GM retirees like Henry Winston Moore, Jr., who spent 32 years with the company, were worried about their futures as well, Mason reports.

"I need those people who are in there now at $14, $18 an hour to be able to still work, hopefully so I can still receive a pension every month," Moore said.

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

CBS News poll from March 17, Americans have little sympathy for U.S. automakers facing financial difficulties. Just 18 percent think the government should provide them with additional financial assistance, and 76 percent think the government should not.

Also, the public blames the automakers themselves for their current problems - by a big margin. Sixty-three percent say the problems facing the big three auto companies are mostly the result of management strategies and decisions (up from 56 percent last December), while only 24 percent say the problems are a result of economic conditions beyond the automakers' control.

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.