Obama Gets Tough With GM, Chrysler

The Obama administration is setting deadlines for General Motors and Chrysler to force them into a painful restructuring. The government is pumping just enough cash into the automakers to help them survive for a month or two. Obama says it may take bankruptcy to give the two auto giants the fresh start they need.

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This is MORNING EDITION from NPR News. I'm Renee Montagne.

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And I'm Steve Inskeep.

GM and Chrysler are being told to imagine what they considered unimaginable. President Obama spoke of bankruptcy court as he laid out the next steps for the automakers, which is not what the companies were hoping to hear. Their executives have said this would ruin them. In a moment we will talk with an analyst about the companies' prospects for long term survival. First NPR's Scott Horsley looks at the case for putting the carmakers into bankruptcy court.

SCOTT HORSLEY: President Obama says the federal government must not and will not let the domestic auto industry disappear. But he's not willing to use taxpayer dollars to prop up that industry indefinitely, either. Speaking at the White House yesterday, Mr. Obama said it may take bankruptcy to give the two automakers the fresh start they need.

President BARACK OBAMA: I know that when people hear the word bankruptcy it can be unsettling, so let me explain exactly what I mean.

HORSLEY: Mr. Obama says he is talking about a quick reorganization under court supervision, one that would allow GM and Chrysler to shake off their heavy debt burdens while many workers stay on the job and assembly lines keep running.

Pres. OBAMA: What I'm not talking about is a process where companies simply broken up, sold off and no longer exists. We're not talking about that.

HORSLEY: Although the administration says bankruptcy may offer GM and Chrysler their best chance of success, the president stopped short of that option yesterday. Instead, he gave the two companies one more chance to solve their own problems and just enough government money to stay afloat for a month or two.

Pres. OBAMA: During this period they must produce plans that would give the American people confidence in their long term prospects for success.

HORSLEY: Those prospects are far from certain, especially for Chrysler. A government task force concluded Chrysler cannot survive as a standalone company because it can't afford the investments needed to build better, more fuel efficient cars. Chrysler's lifeline could be a partnership with Italian carmaker Fiat. So the government has given Chrysler and Fiat 30 days to make that deal. The taskforce says GM has a better chance of transforming itself and returning to profitability but Mr. Obama says it will take more sacrifice from the company, its workers or its creditors have been willing to make so far.

As a first step in that makeover the administration asked CEO Rick Wagoner to step aside, and over the weekend, Wagoner did so. White House spokesman Robert Gibbs was peppered with questions yesterday about why the administration had not demanded similar executive ousters at big banks, since they also made mistakes and now need government help.

Mr. ROBERT GIBBS (White House Press Secretary): This administration is rightly matching and balancing the notion for responsibility, at the same time understanding that we want to be a partner in ensuring strong and viable auto industry as we move forward.

HORSLEY: President Obama joked on "60 minutes" last week - the only thing less popular than bailouts for banks, is government help for the auto industry. Frank Newport, of The Gallup Poll, says a survey taken for USA Today, over the weekend, found nearly six in 10 Americans opposed to government help for the carmakers.

Mr. FRANK NEWPORT (Editor in Chief, The Gallup Poll): Despite all of the rationale that the Obama administration has used, as late as this weekend, just a day or two ago, the American public said no.

HORSLEY: President Obama will keep trying to sell his proposal, though, and in the meantime he's also pitching in to help sell a few cars. The administration says slumping sales are only part of the problem at GM and Chrysler, but to avoid driving would be buyers away, the government has agreed to back stop the warranties on the two company's vehicles.

Pres. OBAMA: If you buy a car from Chrysler or General Motors you will be able to get your car serviced and repaired just like always. Your warranty will be safe. In fact, it will be safer than it's ever been because starting today the United States government will stand behind your warranty.

HORSLEY: Carmakers will pay about 15 percent of the expected warranty cost into a special account, the Treasury department will then make up the rest. Ultimately, Mr. Obama says he hopes to see a leaner, meaner, more competitive auto industry. In the meantime he is also promising new assistance to the laid off workers and communities that a slimmed down industry will leave behind.

Scott Horsley, NPR News, The White House.

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Obama Sets Deadlines For GM, Chrysler Overhauls

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

itoggle 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.

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