Obama Outlines Next Steps for GM and Chrysler
30 March 2009
In a statement livecast on the Internet by the White House, President Barack Obama said that neither of the restructuring plans submitted by GM and Chrysler “goes far enough to warrant substantial new investment.”
In his short address, the President confirmed details that had emerged over the weekend about the next steps for the two auto makers. The government will provide GM with “adequate working capital” for 60 more days to “produce a better business plan”. Chrysler, which the government has determined requires a partner to survive, will have 30 days of working capital to conclude a deal with Fiat.
Noting that “GM has made a good faith effort to restructure,” the President said that the “plan in current form is not strong enough...I am confident that GM can rise again, providing that it undergoes a fundamental restructuring.”
Members of the Presidential Task Force on the Auto Industry will work with GM on the new, more stringent, plan, the President said, who also noted the resignation of GM CEO Rick Wagoner as an outcome of the process. (Earlier post.)
The US government has no interest in running GM. We have no intention of running GM. What we are interested in is giving GM an opportunity to make changes.
—President Obama
Chrysler, the President said, is “more challenging”. Saying that the government had determined “with deep reluctance, but clear-eyed recognition of facts, that Chrysler needs a partner to remain viable”, the President said that the government give the company 30 days to see if it can close its deal with Fiat. If Chrysler and Fiat can come to “a sound agreement”, the President said, the government will consider lending up to and additional $6 billion to help them succeed.
If they and stakeholders are unable to reach an agreement, we can’t justify additional tax dollars to keep Chrysler in business.
—President Obama
Obama noted that both companies may need to resort to a streamlined bankruptcy process to “clear away old debts weighing them down”.
In other efforts to support the struggling auto industry, the President said that:
The government will back the warranties on vehicles from GM and Chrysler.
The Administration is seeking to get Recovery Act funds to purchase government cars out as quickly as possible, which could bolster annual sales by some 100,000 units.
The government is accelerating its efforts through consumer and lending initiatives and working with auto finance companies to increase the flow of credit.
The Internal Revenue Service is beginning a campaign to alert consumers of a new credit that will enable the deduction of the cost of any sales and excise taxes for a new car purchased this year.
He backs the scrappage proposal (vehicle fleet modernization incentive program) in Congress, and is working with Congress to find funds for it in the Recovery Act, with the intention of making such an initiative retroactive to today.
The President said that the decisions on GM and Chrysler were being made after consultation with other affected governments, and that the government of Canada will make an announcement later today on its response to the plight of the two companies.
I wouldn't be surprised this game of chicken ends with GM and Chrysler both in bankruptcy...these are heavily entrenched corporate bureaucracies & fiefdoms we're talking about here.
Posted by: ejj | 30 March 2009 at 10:57 AM
Well, if Chrysler merges with Fiat then it's all good. IN GM's case, the BOD as well as most of the upper management structure has to go and replacement them with either outsiders or folks from some of their overseas divisions (Folks who haven't been to Detroit or had avoided Detroit).
Posted by: Gerald Shields | 30 March 2009 at 11:16 AM
"Fundamental Restructuring..." that's a good term...it can be as deep as the people with cash deem it should be.
When the US gave Chrysler a loan in the 1970's, one of the strings attached as that Chrysler had to make more fuel efficient cars. I'd like to see that again.
The US ended up making a profit on that loan (Chrysler stock went up).
The global auto industry has been suffering from overcapacity for a long time now, and analysts have been saying maybe 20% of the factories/brands would probably go away. The game for a company like GM is to figure out how to avoid it being them.
Posted by: HealthyBreeze | 30 March 2009 at 11:47 AM
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This is perfect! Let a man who has never run any kind of business, and has announced that he will "fix" excessive spending by tripling said spending, dictate to business how they should be run. I am now VERY sorry that I voted Obama. He is destroying the country.
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Posted by: The Goracle | 30 March 2009 at 11:48 AM
I think Obama has done a lot of the right things the first 60 days, but this may not be one of them. You are going to put people in charge of GM that have no continuity, right in the middle of a tough situation. If GM goes out of business, there will be a lot of people wishing that GM was still in business, but it will be too late.
Posted by: SJC | 30 March 2009 at 12:34 PM
@ The Goracle,
Sure. I'll bite. Tell us why a CEO whose company has lost $82 Billion since 2004, and whose stock has dropped 95% should be retained. Tell us why to keep a CEO who balked when given the perfect excuse --"the Fed made me do it"-- to offload wasteful dealership contracts, get the retiree health cost liabilities off the books, and aggressively resize the company for the market of the future.
Tell us what Wagoner staying on as long as he did indicates about GMs ability to make needed changes.
Posted by: HealthyBreeze | 30 March 2009 at 12:43 PM
The Goracle said,
"I am now VERY sorry that I voted Obama. "
Based on everything you've said about the candidates in the past, I see this as a falsehood intended to get those people that DID vote for Obama to wonder if they should be starting to think they were sorry too.
Your trollmanship continues unabated...
Posted by: Will S | 30 March 2009 at 01:13 PM
People are actually trashing Obama on this? Are you kidding me?
Wagoner should have been gone years ago. He did allow GM to have great profits in the SUV craze and developed foreign markets but thats it.
He has caved into the unions, did little to help GM weather high gas prices or the economic downturn. He has come up with very little new and of course he killed the EV1.
GM still has many problems, it cannot make small cars at a profit, it cannot fire or lay off workers without paying them huge packages to leave. Its has huge legacy retirement and medical costs. Unless those things are addressed GM cannot survive. That means the union itself needs to take pay cuts (not the employees but the union infrastructure) and all of the job security stuff needs to be gone. In this case the job security provisions the union has are making their jobs LESS secure.
Posted by: paul in hampden | 30 March 2009 at 05:13 PM
Obama had to fire Wagoner. How could he tell the labor union to take a haircut while keeping upper management in place. He's playing hardball with the bondholders and the UAW. Good for him, and for the US taxpayer.
GM and Chrysler can be viable companies if their debt and labor costs are significantly reduced. Bondholders are better off with 50 cents on the dollar (or whatever) than with nothing; workers are better off with a 20-25% pay cut than no job at all. If they're too proud to take a haircut then let them try unemployment.
Posted by: JamesEE | 30 March 2009 at 06:32 PM
The "new" GM CEO - Fritz Henderson
FULL NAME: Frederick "Fritz" A. Henderson
AGE: 50. Born Nov. 29, 1958, in Detroit.
EDUCATION: Bachelor's of business administration degree with an emphasis in accounting and finance from the University of Michigan, 1980; master's degree in business administration from Harvard Business School, 1984.
PROFESSIONAL CAREER: Named General Motors Corp. chief executive officer on March 30, 2009, succeeding Rick Wagoner; GM president and chief operating officer, March 2008-March 2009; GM group vice president and chairman of GM Europe, 2004-2008; president of GM Asia Pacific, 2002-2004; group vice president and president of GM Latin America, Africa and Middle East, 2000-2002; vice president and managing director of GM do Brasil with responsibilities throughout Latin America, 1997-2000; responsibilities in parts operations, 1994-1997; joined GM as a senior analyst in the treasurer's office in New York, 1984.
Rick Wagoner's leadership was one of "the blind leading the blind" --- Doesn't that make 'Fritz' one of the blind?
Posted by: ai_vin | 30 March 2009 at 07:43 PM
The reason people are actually trashing Obama on this is:
He is forcing out the man (Wagoner) who has:
1. Achieved great profits for GM before and during the SUV craze.
2. Developed foreign markets.
3. Done this with the government protected unions on his back.
(and Obama has the gall to pretend GM can “make” Obama’s unions take pay cuts when it cannot legally fire or lay off workers without paying them huge packages to leave. Nor can Wagoner legally just rescind the “huge legacy retirement and medical costs and all of the job security stuff”?)
4. Helped GM weather the last 20 years of the almost total loss of manufacturing to Asia (Tools, Factory machines, TVs, VCRs, Clothing, Furniture, Steel, Toys, Motorcycles, Small cars etc.).
5. Attempted to make and sell many small car models in unsuccessful completion with Asian manufacturers. As we know “it cannot make small cars at a profit”.
6. Created the EV1; a car type not one of the 50+ world wide auto makers have been able to profitably make yet, in 10 years.
That means the union itself needs to take pay cuts; and that IS the employees, the union infrastructure may be over compensated (or not) but the $3000 per car “penalty” that the notso big 3 pay, is mostly from the many workers, not the few union bosses.
The job security provisions of the union are making their jobs less secure ONLY if someone is ready to say “no more bailouts. ‘Bankruptcy’ it is.” Other wise they’ll just keep on suckling.
And I will be pleasently surprised if Obama does not give the unions a BIG bonus. After all, they have become accustomed.
Is Wagoner responsible for Fords and Chryslers problems also?
What are the common factors? The UAW and US wages.
Who’s at fault ? The voters and politicians that create laws that allow a union to stop a US auto maker indefinitely until their demands are met. But then all 3 auto makers honor the new fat contract and all is even.
Right? NOPE, that’s where Toyota, Nissan and Honda come right in.
Does GM and Ford get to build Cobalts and Focus’ in Japan? Sure, go ahead. And pay the GM and Ford Japanese auto workers less than they pay their own ? Fat chance.
Posted by: ToppaTom | 30 March 2009 at 08:06 PM
Meanwhile, Ford is about to absolutely clean up in the USA market with their upcoming new product line (Fusion sedan now, Fiesta coming early 2010 and new Focus coming late summer 2010).
Ford should at once license the highly-advanced clean diesel engine technology from Ricardo and offer their excellent Duratorq engines for US-market models. You'd buy a new Fiesta with a Ricardo-modified Duratorq TDCi 1.6-liter engine with the Powershift dual-clutch transmission, which means the new Fiesta could get Prius-like fuel economy! :-)
Posted by: RaymondC | 31 March 2009 at 06:16 AM
.
I really like the personal attacks directed towards me on this forum. Many on Green Car Congress seem to believe that name calling is the best way to show that one's argument is correct. e.g. "I'm correct because I'm going to call you a (insert derogatory term here)! You're a _____!!! There that proves me correct." I, of course, disagree with that form of "science."
Feel free, once again, to call me names for disagreeing. If that's the best argument that you've got, of course.
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Posted by: The Goracle | 31 March 2009 at 07:46 AM
Ford may not make it either. They borrowed more than $120 billion in 2004 and are down to under $20 billion the last time I looked. They might make it through the rest of the year, but with the projections on the economy, not much farther than that.
That is why they asked for a $9 billion line of credit with the government, reserved if they need it. Every time I hear that Ford is in "better shape", I guess they are comparing them to the other two. They just happened to borrow a ton while there was still a credit market.
Posted by: SJC | 31 March 2009 at 09:38 AM
I'm surprised for mature topics that invovle sustainable mobility, there's always a mindful that resort to name calling. Makes one wonder if there are adults or kids reading and commenting on these kind of articles.
Nevertheless, I'm glad Obama is taking some sort of action, we already gave them loans and their stock is still sinking! If I lived in the U.S.A and saw my tax dollars at worked being pissed away like that, would you still pay and watch these automakers fail?
I'm curious to see what Harper does to address the situation, I hope he just doesn't do what Obama does since he's an ass kisser.
Posted by: philmcneal | 31 March 2009 at 05:52 PM
We could have bought GM for what we lent them. GM is worth more as a going entity than their market capitalization, the trick is keeping them going.
The board and CEO should have never allowed the company to lose billions of dollars every quarter for years. They should have stuck with a downsizing until they could weather whatever came their way.
More than two years ago, the three automakers went to the White House to talk with Bush about their situation. He told them to take a hike. Maybe early intervention might have done the trick. We will never know now.
Posted by: SJC | 31 March 2009 at 07:45 PM
Downsizing was never the answer. GM is alive today because they made big bucks selling what many people wanted - big cars, SUVs and trucks. With the UAW they cannot make small cars at a profit. Maybe not without either.
If they are kept alive, their future will be to watch Titan, Tundra and Sequoia take their big vehicle sales away from them. Never mind trying to beat Honda, Toyota, Nissan and VW with downsized cars.
The only early intervention that could have saved them was to get the UAW off their backs.
Posted by: ToppaTom | 31 March 2009 at 08:22 PM
Posted by: Engineer-Poet | 31 March 2009 at 10:04 PM
"I really like the personal attacks directed towards me on this forum."
Isn't the name you're using [The Goracle] meant to be a 'personal attack?' Judging by the profile linked to it I say the answer is "yes."
Posted by: ai_vin | 01 April 2009 at 01:19 PM
I was referring to a downsized company and not smaller cars, but I understand your point.
GM had to scale down and did employee buy outs starting at least 2 years ago. They knew what to do, they just did not stick with it.
Bush could have helped, he chose not to. When you have a fixed ideology, you know the answer before the question has been asked....NO.
Posted by: SJC | 01 April 2009 at 03:55 PM
Oh, THAT kind of downsizing.
Sure, that will probably help some.
But since Chrysler's problem is that they are too small, that's no golden goose either.
And how much will it help?
They'd be lucky to sell plants at 1 cent on the dollar.
They spent billions buying out employees (what kind of BS is that, anyway?) but ran out of money to continue.
What was Bush to do?
There's nothing "too late" about this problem.
If GM had persisted in the EV1 or tooled up for more small cars sooner, they would have squandered the money they made on gas guzzlers and be long gone by now.
With the UAW they cannot make small cars at a profit.
We don't like big cars. People should not buy big cars. GM made billions selling big cars. That is NOT why they have no money - DUH.
If ideology is the problem, and the solution is so utterly simple, why has it eluded all three US auto companies for 10 years? All three.
It is because they are stuck; all three of them.
All three ? Stuck? How? What do they have in common that could cause such a remarkable thing?
Ignorant American managers and workers?
No, $3000/car to support the UAW.
At 4 million vehicles per year, that’s $12 billion per year.
$120 billion in 10 years.
Nah, that can't be it; it must be bad management. All three - for decades.
I’ll bet that (1) nobody remembered to tell upper management they were loosing billions and (2) the BOD therefore rejected all change because as any good mechanic knows, “if it ain’t broke, don’t fix it”. It’s simple.
Obama says "The US government has no interest in running GM."
Oh great. He should he have decided that before he took it over!
But so what, maybe this kind of disinterested management will let GM go to bankruptcy and not pour in billions more of our money to save the unions.
Think so?
No.
Posted by: ToppaTom | 02 April 2009 at 02:37 AM
There's an obvious solution: start manufacturing electric vehicles in collaboration with Tesla - a manufacturing/engineering/IPR relationship. It would creat jobs and make the U.S. a world leader in electric vehicle production - so why no discussion?
Posted by: Ike Solem | 02 April 2009 at 05:16 AM
@ Toppa, SJC, Ike,
With China looking to ignore being behind in ICE engines, by leapfrogging to electric cars...it raises a legitimate question about not only how to shape a US car manufacturer for today, but also for tomorrow.
By using bankruptcy to sell GM's attractive assets to a new a "good car company" (Cadillac, Chevrolet, the patent portfolio, and maybe some overseas brands) and leaving the liabilities with the old entity, it's an opportunity for a clean slate and a fresh start.
What should that new company look like?
Posted by: HealthyBreeze | 02 April 2009 at 11:31 AM