Obama Issues Ultimatum

This man means business, real business!

http://www.nytimes.com/2009/03/31/business/31auto.html?ref=global
WASHINGTON — President Obama announced what amounts to a do-or-die ultimatum for the struggling automobile industry on Monday, laying out strict standards that the carmakers must meet to get more government aid and declaring that the industry must survive because it is “like no other, an emblem of the American spirit.”
President Obama after remarks on Monday. The nation “cannot afford to shirk responsibility any longer,” he said.
Obama Adminstration’s Auto Rescue Plan
G.M. Chairman Departs Rick Wagoner was asked to resign as a condition of federal help.
Working Capital The government will provide financing to G.M. for 60 days while a restructuring plan is developed.
30-Day Deadline Manufacturers have until April 30 to get concessions from union workers and creditors.
Chrysler-Fiat Partnership Chrysler would get 30 days of working capital to enter a partnership with Fiat that would give the Italian automaker a 35 percent stake.
Warranty Commitment The government would back an account to pay for repairs on autos made during the manufacturers’ restructuring periods.
Director of Auto Recovery Edward Montgomery, a former deputy Labor secretary, will oversee rescue efforts.
Robert Nardelli, the chief of Chrysler, at the North American International Auto Show in Detroit in January.
A failure of leadership “from Washington to Detroit” over the years has led the industry to the brink of collapse, the president said, and in more recent days both General Motors and Chrysler have failed to come up with plans adequate to justify the billions more in government help that they are requesting.
“And so today, I am announcing that my administration will offer G.M. and Chrysler a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars; a period during which they must produce plans that would give the American people confidence in their long-term prospects for success,” the president said at the White House.
Speaking a day after the White House pushed out the chairman of G.M., Mr. Obama said Chrysler has been instructed to form a partnership with the Italian automaker Fiat within 30 days as conditions for receiving another much-needed round of government aid.
The president said he was designating Edward Montgomery, a former deputy labor secretary, to oversee the auto-recovery effort. His mission will be far-reaching, to cut through government red tape and identify initiatives to support those communities hit hard by the industry’s troubles.
Other salient features of the latest plan to pull Detroit out of its decadeslong skid include a tax break, being started by the Internal Revenue Service at once, for auto purchases made between Feb. 16 and the end of 2009; incentives for people to turn in older, less fuel-efficient vehicles and buy more energy-efficient cars and government-backed warrants to assure customers that they have nothing to fear by buying a car from G.M. or Chrysler.
While the president’s announcement embodies firm government control of the car industry, at least for the time being, he said, “These companies — and this industry — must ultimately stand on their own, not as wards of the state.”
Mr. Obama said his administration has been working closely with the Canadian government, which was to announce its own “specific commitments” later Monday. Both G.M. and Chrysler have extensive operations north of the border.
The concept of encouraging people to buy more fuel-efficient cars, which has been tried with considerable success in Europe, will require the cooperation of Congress. Mr. Obama said he would work with lawmakers to identify portions of the recently enacted multibillion-dollar stimulus package that could be trimmed to finance the purchase-incentive idea — and make it effective at once.
General Motors, in a statement released after the president’s comments, said that over the next 60 days, the company would try to “address the tough issues to improve the long-term viability of the company, including the restructuring of the financial obligations to the bond holders, unions and other stakeholders.”
“Our strong preference is to complete this restructuring out of court,” G.M. said. “However, G.M. will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process.”
The president tried to project optimism as he summoned images of Detroit’s mighty past, even as he spoke of decades of complacency and problems left for another day “even as foreign competitors outpaced us.”
“Well, we have reached the end of that road,” he said. “And we, as a nation, cannot afford to shirk responsibility any longer.”
The president did not mention Ford, the other company in Detroit’s Big Three. While it has had problems, Ford has not yet found it necessary to seek government assistance.
The president envisioned an auto industry much different, almost surely smaller, and more nimble. Yet in doing so, and voicing confidence that the industry can travel that road, he recalled an earlier Detroit that “built an arsenal of democracy that propelled America to victory in the Second World War, and that powered our economic prowess in the first American century.”
The decision to ask G.M.’s chairman and chief executive, Rick Wagoner, to resign caught Detroit and Washington by surprise, and it underscored the Obama administration’s determination to keep a tight rein on the companies it is bailing out — a level of government involvement in business perhaps not seen since the Great Depression.
“This is not meant as a condemnation 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 G.M. of the future,” Mr. Obama said.
The president made clear that some form of bankruptcy, or something close to it — a quick, court-supervised restructuring, as officials described it in advance — could still be an option for G.M. or Chrysler or both. “What I am not talking about is a process where a company is broken up, sold off, and no longer exists,” the president said
Mr. Obama’s auto industry task force, in a report released Sunday night assessing the viability of both companies and detailing the administration’s new plans for them, concluded that Chrysler could not survive as a stand-alone company.
Obama Adminstration’s Auto Rescue Plan
G.M. Chairman Departs Rick Wagoner was asked to resign as a condition of federal help.
Working Capital The government will provide financing to G.M. for 60 days while a restructuring plan is developed.
30-Day Deadline Manufacturers have until April 30 to get concessions from union workers and creditors.
Chrysler-Fiat Partnership Chrysler would get 30 days of working capital to enter a partnership with Fiat that would give the Italian automaker a 35 percent stake.
Warranty Commitment The government would back an account to pay for repairs on autos made during the manufacturers’ restructuring periods.
Director of Auto Recovery Edward Montgomery, a former deputy Labor secretary, will oversee rescue efforts.
Stephen Crowley/The New York Times
Rick Wagoner, right, the chairman of General Motors, testifying in November before a Senate panel on the auto industry, along with Robert Nardelli, the chief of Chrysler.
The report said the company would get no more help from the government unless it can finalize a proposed alliance with the Italian automaker Fiat by April 30. It must also reduce its debt and health care obligations.
If a deal is reached between Chrysler and Fiat, the administration says it would consider another loan of $6 billion to Chrysler.
G.M., on the other hand, has made considerable progress in developing new energy-efficient cars and could survive if it can cut costs sharply, the task force reported. The administration is giving G.M. 60 days to present a cost-cutting plan and will provide taxpayer assistance to keep it afloat during that time.
Although some observers of the auto industry have attributed Detroit’s troubles in part to generous wages and health benefits for assembly line workers, the president made no mention of those factors. “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,” he said. “And it is not the fault of all the families and communities that supported manufacturing plants throughout the generations.”
Rather, he said, there has been a failure of leadership.
Along with Mr. Wagoner’s ouster, the task force said most of the company’s board would be replaced over the next few months. In a statement Monday, Mr. Wagoner said he had been urged to “step aside” by administration officials, “and so I have.”
His resignation is the latest example of the government taking a hands-on role in making major decisions at companies it is bailing out. The government has already pushed banks to make management changes and sharply reduce or eliminate their dividends, and it also is directing many of the decisions at the troubled insurance giant, American International Group, which is nearly 80 percent owned by the government after its rescue.
In deciding to urge Mr. Wagoner to step down, the Obama administration seemed mindful of the public’s growing outrage over bailouts of private companies, as well as the bonuses paid to employees of A.I.G.
Mr. Obama is well aware that he cannot afford to give the appearance of using tax dollars to reward executives who have done a poor job, and he began signaling as early as last week that he would take a tough stance with the automakers.
The plan Mr. Obama announced on Monday will also include government backing of warranties for G.M. and Chrysler cars and trucks, to give consumers enough confidence to buy them, even if one or both are forced into bankruptcy.
Mr. Wagoner has presided over a steep drop in G.M.’s domestic market share, which has led to tens of billions of dollars in losses. His critics have said that management’s failure to move aggressively to address the company’s problems contributed to its dire financial situation.
G.M. and Chrysler have almost exhausted the combined $17.4 billion in federal aid they have received since December. G.M. has asked for up to $16.6 billion more, and Chrysler has requested another $5 billion.
Bondholders are under pressure to convert two-thirds of the $27 billion owed them into G.M. stock, while the United Auto Workers union is being asked to substitute stock for 50 percent of their health care benefits for retirees. Both groups have resisted those changes.
Administration officials say they have enough money to offer the assistance they envision under plans already approved by Congress. Even so, Mr. Obama may face skepticism on Capitol Hill and from the public.
As part of the companies’ original agreement for the loans, both were required to submit restructuring plans. Mr. Wagoner’s removal underscores how much more G.M. needs to cut than was proposed in the plan the company submitted.
Administration officials stressed that the company needed a fresh approach and leadership changes; they said Steven Rattner, the former investment banker who co-chairs the auto task force, delivered the news to Mr. Wagoner.
Frederick A. Henderson, G.M.’s president, will succeed Mr. Wagoner on an interim basis as chief executive; Kent Kresa, a board member, will assume the chairmanship. Members of the auto panel spoke with Mr. Henderson recently and came away with a favorable impression of him, people familiar with the panel’s discussions said.
G.M. collapsed last fall when new-vehicle sales in the United States plummeted to their lowest level in 25 years. G.M. lost more than $30 billion in 2008, and has been subsisting on government loans since the beginning of the year.
The administration briefed lawmakers on the plan Sunday night. Afterward, Representative Thaddeus G. McCotter, Republican of Michigan, whose district is just outside Detroit, expressed frustration over the ousting of Mr. Wagoner and with administration officials for not being clearer about the potential job losses that lie ahead.
“Why would you ask Rick Wagoner to resign when you are giving G.M. 60 days to meet a new target, but you aren’t saying what the new goal is yet,” Mr. McCotter said in an interview.