President Barack Obama announced an extraordinary bid to remake the ailing U.S. auto industry Monday, saying he would withhold long-term federal aid to two carmakers unless they make sweeping changes to ensure their survival.
In blunt terms, Obama said his vision for reshaping GM and Chrysler would be painful to the companies and their workers, but insisted the strong medicine was the only course to saving them – while also leaving open the possibility they could fail.
And he spoke directly to auto workers and communities who rely on the plants, saying, “I will not pretend the tough times are over. I cannot promise you there isn’t more pain to come. But what I can promise you is this – I will fight for you. You are the reason I am here today.”
“These efforts, as essential as they are, will not make everything better overnight. There are jobs that cannot be saved. There are plants that will not reopen. . . .”
Obama also took the dramatic step of putting the federal government fully behind the two companies’ products – saying the United States would back the warranties on their cars for the rest of the years, in hopes that consumers wouldn’t shy away from the battered companies.
In the case of GM, Obama sought the resignation of CEO Rick Wagoner, and Wagoner complied by stepping aside. Obama gave GM 60 days to restructure and sounded optimistic the company could.
In the case of Chrysler, Obama was much more pessimistic – giving them only 30 days to cut a merger deal with Italian automaker Fiat. If they merged, he offered $6 billion in new loans. If they don’t, Obama said they would get no more federal aid – and likely be forced into bankruptcy.
“Year after year, decade after decade, we have seen problems papered-over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we have reached the end of that road,” Obama said. “And we, as a nation, cannot afford to shirk responsibility any longer. Now is the time to confront our problems head-on and do what’s necessary to solve them,” Obama said.
“But I am confident that if we are each willing to do our part, then this restructuring, as painful as it will be in the short-term, will mark not an end, but a new beginning for a great American industry; an auto industry that is once more out-competing the world; a 21st century auto industry that is creating new jobs, unleashing new prosperity, and manufacturing the fuel-efficient cars and trucks that will carry us toward an energy independent future.”
The White House first floated its plans Sunday, saying it had concluded that neither GM nor Chrysler as they now exist deserve more federal bailouts – and demanding dramatic steps by both companies to show they can survive.
“The pain being felt in places that rely on our auto industry is not the fault of our workers, who labor tirelessly and desperately want to see their companies succeed. And it is not the fault of all the families and communities that supported manufacturing plants throughout the generations. Rather, it is a failure of leadership – from Washington to Detroit – that led our auto companies to this point,” Obama said.
The administration found that both carmakers had failed to prove their “viability” as required under the terms of the massive government loans they’ve already received, and determined that neither should receive another bailout without making significant changes.
“We have unfortunately concluded that neither plan submitted by either company represents viability, and therefore does not warrant the substantial additional investments that they requested,” a senior administration official told reporters.
Obama also made clear he feels confident GM can turn around, but he isn’t so sure about Chysler. “Chrysler is a more difficult situation,” the official said. “If [Chrysler and Fiat] cannot come to a satisfactory agreement … and if no other viable partnership emerges for Chrysler, we will not be able to justify investing additional American tax dollars into Chrysler.”
But Obama’s announcement already is running into resistance from Michigan lawmakers, who said it doesn’t go far enough. Michigan Gov. Jennifer Granholm said GM’s CEO Wagoner was being made into a sacrificial lamb.
The shove to Wagoner, a 30-year GM veteran, came from the Treasury-led Presidential Task Force on the Auto Industry, which Obama named in February in lieu of a “car czar.” It is the most vivid example so far of the extraordinary new role that the government, as controller of the bailout purse strings, is playing in American business.
GM and Chrysler have almost used up the $17.4 billion in combined federal aid they took in since December. GM has asked for up to $16.6 billion more, and Chrysler has requested another $5 billion.
The warranty program, a surprise offering, is designed to encourage consumers to buy cars without having to worry about whether or not the manufacturer will be out of business by the time something breaks. The administration is promising to “stand behind new cars purchased from GM or Chrysler during this period … of uncertainty.”
“No American should worry in buying a car from Chrysler, GM over this next period of time,” said the official, who added that the administration has no cost estimate for the “Warranty Commitment Program.”
The administration also announced that to help the affected communities, it is naming a Director of Recovery for Auto Workers and Communities. The post will go to Edward Montgomery, a labor economist and former Deputy Secretary of Labor, whose job will be to “work to leverage all resources of government to support the workers, communities and regions that rely on the American auto industry.”
In stark language, the administration’s five-page “Determination of Viability” for GM spells out the harsh findings: “General Motors has not satisfied the terms of its loan agreement. … It is strongly believed, however, that … a substantial restructuring will lead to a viable GM.”
Officials made it clear that Chrysler is much worse off than GM.
“If you even look at Chrysler’s own viability submission, you’ll see that based on their own assumptions, they kind of eke it along,” the official said. “They really never generate positive cash flow. They’re never in a position, really, to pay down their debt. It’s not … a very realistic or workable place for a company to be.”
“If you look at things like Consumer Reports’ ranking of cars, you’ll see very great differences between those two companies,” the official continued. “General Motors' Malibu won the car of the year award last year. Chrysler has zero cars – no cars – that are recommended by Consumer Reports.”
The official added: “There are certainly lots of fine Chrysler cars out there and we’re not trying to dissuade anyone from buying them. But we are attempting to make these viability assessments.”