President Obama Wants To Shake Up GM, Chrysler

Originally Posted at Politico

In surprising findings to be outlined at the White House on Monday, President Obama has concluded that neither GM nor Chrysler as they now exist deserve more bailouts. But the White House is sparing them for a month or two, and is promising American consumers that the government will stand behind warranties if the automakers fail.

Most remarkably, the administration demanded that GM CEO Rick Wagoner resign so the company could remake itself “with a clean sheet of paper.” And he did, effective immediately. The administration also said GM has been given a “goal of replacing a majority of the board over the coming months.”

The administration found that both carmakers had failed in their viability assessments as required under the terms of the massive government loans they’ve already received, and determined that neither should receive another bailout. [ Chrysler viability assessment ]

“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 on a conference call Sunday night.

Obama is to deliver his “remarks about the American automotive industry" at 11 a.m. ET.

Under the hard-nosed “Obama Administration New Path to Viability for GM & Chrysler,” GM is getting 60 days of “working capital” – money to pay bills during the restructuring. The administration did not specify an amount.

Chrysler is getting just 30 days to reach a long-discussed deal with Fiat, the Italian carmaker. The government would lend the new venture as much as $6 billion.

“Chrysler is a more difficult situation,” the official said. “Chrysler is unfortunately not viable as a stand-alone company. … 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.”

The administration said both companies may need to restructure using the protection of courts, under a form of bankruptcy.

The White House held a Sunday night conference call with members of Congress from auto-producing states, and the lawmakers were far from satisfied.

"Tough love hurts," said a source familiar with the discussions. "The members received the briefing with a sense of anxiety.” The source said the timeline and funds to be announced Monday are "not good enough."

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.

A senior administration official said there was no “quid pro quo” for Wagoner’s departure: “The task force asked, and he agreed to leave GM.”

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.”

The five-page findings for Chrysler say: “Chrysler has not satisfied the terms of its loan agreement. … The Chrysler plan is not likely to lead to viability on a standalone basis.”

Obama plans very tough rhetoric in his remarks Monday, with aides saying he will say explicitly that even greater sacrifice will be required from everyone involved with the auto industry.

“That’s just the unfortunate fact of life,” the official said. “It doesn’t make any of us happy. But we view ourselves as the custodians of taxpayer dollars, and we really want to be sure that when they are put to work, they are put to work in a thoughtful way, with every expectation of recovery.”

The companies can expect little leeway in the future.

“Look, we are not trying to delay the outcome of this process,” the official said. “The president has established very firm, very clear, unambiguous, unchangeable deadlines and guidelines for which the government will invest new money. And we intend to stick to those. … I hope everyone on this call gets the fact that this is not business as usual. This is a new approach that we are very emphatic about. Having said that, we want to give these companies every opportunity to succeed.”

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.”

The official said that the administration views GM, on the other hand, as “a much substantial collection of assets, a much more substantial collection of brands.”

“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.”