NPR logo
U.S. Sets Tough Targets For GM, Chrysler
  • Download
  • <iframe src="https://www.npr.org/player/embed/102524632/102524624" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
U.S. Sets Tough Targets For GM, Chrysler

Business

U.S. Sets Tough Targets For GM, Chrysler

U.S. Sets Tough Targets For GM, Chrysler
  • Download
  • <iframe src="https://www.npr.org/player/embed/102524632/102524624" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

The Obama administration is setting deadlines for GM and Chrysler and trying to force them into a painful restructuring. GM has 60 days to extract concessions from its two main stakeholders: the union and bondholders. Chrysler has just half that much time to accomplish an even more challenging task.

MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris.

After billions of dollars in taxpayer loans, President Obama has given General Motors and Chrysler a hard deadline to fix their businesses - 60 days for GM, 30 days for Chrysler.

President BARACK OBAMA: Now's the time to confront our problems head-on and do what's necessary to solve it.

NORRIS: Otherwise the companies and the people to whom they owe money are headed for bankruptcy court. NPR's Frank Langfitt reports on a watershed moment for Detroit's once-proud auto industry.

FRANK LANGFITT: The government has loaned GM and Chrysler $17 billion just to survive. This week the companies had to prove they could be viable. The White House auto task force said they'd failed and the president signaled that the day of reckoning may have arrived.

Pres. OBAMA: Year after year, decade after decade, we've seen problems papered over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we've reached the end of that road.

LANGFITT: Mr. Obama is giving GM 60 more days, and Chrysler another 30 days, to make deeper cuts. That includes restructuring more than $50 billion in debt to bond holders and healthcare obligations to the United Auto Workers. The government will provide funding to keep the companies operating and back warranties for cars sold during that time. But, Mr. Obama said if the automakers don't produce results, they will face a bankruptcy judge.

Pres. OBAMA: While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger.

LANGFITT: The president said he was confident GM could turn around. He was less optimistic about Chrysler. Yesterday Mr. Obama forced out GM CEO Rick Wagoner. Wagoner had fought thought chapter 11. Today, his former employer struck a more conciliatory tone. In a statement, the company said GM will take whatever steps are necessary to successfully restructure the company, which could include a court supervised process.

Mr. JOHN CASESA (Prominent, Auto analyst): Well, I think the task force is prepping, you know, all the constituencies for a prepackaged bankruptcy.

LANGFITT: That's John Casesa. He's prominent auto analyst and a former GM employee, and he summed up a growing consensus among auto observers. Given the short timeframe and huge debts, Casesa said it would be hard for GM to make the sweeping changes needed outside of court.

Mr. CASESA: It'll take extraordinary concessions on the part of the stakeholders, particularly the bondholders and the union, to avoid bankruptcy. It could happen, but the odds aren't high.

LANGFITT: But many still see a lot of value in GM and can envision a future beyond bankruptcy. The outlook for Chrysler is not as bright. The government is giving Chrysler half as much time to do even more. Not only does it have to slash costs, it also has to complete a deal with the Italian carmaker Fiat to become globally competitive.

Mr. MICHAEL ROBINET (CSM Worldwide): It's equivalent of a 70-year field goal.

LANGFITT: Michael Robinet works for CSM Worldwide, a respected auto forecasting firm. He says Fiat could provide the small fuel efficient cars Chrysler needs to compete, but it could take at least a year and half to produce them in the U.S. While it's still possible both Chrysler and GM could make it, Robinet is skeptical.

Mr. ROBINET: It's going to be extremely difficult for Chrysler to survive in the future. We're going to have to face facts, and a stronger Detroit two makes probably more sense than a weaker Detroit three.

LANGFITT: Chrysler tried to stay upbeat yesterday. In a statement, the company said it will keep trying to slash its obligations and forge a strong union with Fiat. The government has said it's willing to help finance such a deal if it believes it will work. And that, almost certainly, is Chrysler's last best hope.

Frank Langfitt, NPR News, Washington.

Copyright © 2009 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Obama Sets Deadlines For GM, Chrysler Overhauls

The President Confronts Detroit

Obama's Speech
  • <iframe src="https://www.npr.org/player/embed/102496361/102505364" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
NPR Analysis
  • <iframe src="https://www.npr.org/player/embed/102496361/102505411" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
Rick Wagoner, seen in February, is stepping down as GM chief. i

Rick Wagoner, seen in February, is stepping down as chief of General Motors at the government's request. Bill Pugliano/Getty Images hide caption

toggle caption Bill Pugliano/Getty Images
Rick Wagoner, seen in February, is stepping down as GM chief.

Rick Wagoner, seen in February, is stepping down as chief of General Motors at the government's request.

Bill Pugliano/Getty Images

President Obama took a hard line Monday with General Motors and Chrysler, setting tough conditions for another government bailout and raising the possibility of a structured bankruptcy to get the companies on the road to profitability.

Obama said his auto task force found that the companies' plans for restructuring were insufficient to warrant a bigger financial commitment by taxpayers. He also said that GM would be under new leadership as the company struggles to redefine itself.

"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," Obama said.

But the president also threw the automakers a lifeline, announcing a raft of incentives to help GM and Chrysler sell cars. They include government-backed warranties, tax incentives to car buyers, the release of funds to buy cars for the government's fleet and a possible "scrappage incentive" trade-in program for less reliable older cars.

In a statement, former GM chairman and CEO Rick Wagoner said administration officials asked him to step aside Friday when he was in Washington for a meeting.

Fritz Henderson, GM's president and chief operating officer, will lead restructuring efforts as the company's new CEO. Wagoner said Henderson was a good choice for the job.

"GM is a great company with a storied history," Wagoner said in his statement. "Ignore the doubters, because I know it is also a company with a great future."

In December, the Bush administration approved $17 billion in federal funds to help GM and Chrysler survive. But continued government assistance was contingent upon the companies submitting viable restructuring plans to the Obama administration.

Last week, Obama said carmakers sell 14 million vehicles in an average year, but that number has dropped to 9 million.

The president gave GM 60 days to win concessions from unions, creditors and others and consolidate unprofitable brands. Obama said the administration would provide both working capital and assistance during the 60-day window.

In the case of Chrysler, Obama said the company must have a partner to stay in business. He gave Chrysler 30 days to reach a merger agreement with Fiat, which has agreed to build fuel-efficient cars in the United States and repay U.S. taxpayers for new investments made before Fiat assumes majority ownership, he said.

If Fiat and Chrysler strike a bargain, the government may consider an additional loan of up to $6 billion, Obama said. If the companies do not agree to a partnership, the government would not continue to invest in Chrysler, leaving the door open to bankruptcy.

"While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plans they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger," Obama said.

Henderson said GM will work hard to meet Obama's deadline.

"The U.S. Treasury has said that it strongly believes that a substantial restructuring will lead to a viable GM. Over the next 60 days, we will work around the clock, with all parties, to meet the aggressive requirements that have been set by the task force, and to make the fundamental and lasting changes necessary to reinvent GM for the long term."

The recession has hit the auto industry hard. In Michigan, 1 in 10 residents has been thrown out of work, as manufacturers, dealers and parts suppliers shed more than 400,000 jobs, Obama said.

And the president said more sacrifices would be needed if the companies are to become viable.

But Michigan Rep. Thaddeus McCotter, a Republican, said the companies' initial plans cut 50,000 jobs. He said he's worried about what else can be sacrificed.

McCotter said he is concerned about how retirees' pensions and benefits will fare if the automakers head into bankruptcy.

Contributing: NPR staff and member station WDET in Detroit.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.