GM 2.86
Obama: GM, Chrysler Need To Make More 'Painful' Changes
President Barack Obama refused further long-term federal bailouts for General Motors and Chrysler, saying more concessions were needed from unions, creditors and others before they could be approved.
He raised the possibility Monday of controlled bankruptcy for one or both of the beleaguered auto giants.
At the same time, eager to reassure consumers, Obama announced the federal government would immediately begin backing the warranties that new car buyers receive—a step designed to signal that it is safe to purchase U.S.-made autos and trucks despite the distress of the industry.
In a statement read at the White House, Obama said he was "absolutely committed" to the survival of a domestic auto industry that can compete internationally.
And yet, "our auto industry is not moving in the right direction fast enough," he added.
In an extraordinary move, the administration forced the departure of Rick Wagoner as CEO of General Motors [GM 2.8688 -0.7512 (-20.75%) ] overt the weekend, and implicit in Obama's remarks was that the government holds the ability to pull the plug on that company or Chrysler.
Ford, [F 2.8101 -0.0299 (-1.05%) ] the third member of the Big 3, has not requested federal bailout funds, and was not included in the president's remarks.
The Bush administration late last year approved $17 billion in federal funds to help GM and Chrysler survive.
Even as he pronounced their effort unsatisfactory, the president said the administration will offer General Motors "adequate working capital" over the next 60 days to produce a reorganization plan acceptable to the administration.
He also announced several steps to reassure consumers, and improve the chances that U.S. automakers will be able to sell their cars and trucks.
The president said the government will now stand behind warranties issued by the car makers, a sweeping new guarantee that some in Congress had sought.
He also noted that the economic stimulus legislation he recently signed allows the purchasers of new domestic cars to deduct the cost of any sales and excise taxes.
Obama said this provision could "save families hundreds of dollars and lead to as many as 100,000 new car sales." He also said funds ticketed for the purchase of new vehicles for government agencies would be spent as quickly as possible.
The president was flanked by numerous administration officials as he spoke, including Treasury Secretary Tim Geithner.
As the president noted, the industry has shed more than 400,000 jobs in the past year as the recession took hold.
Officials announced last week bailout funds would be made available to companies that supply the automakers, an attempt to keep them afloat.
Obama said he is committed to the survival of an auto industry—on terms that will allow it to compete internationally.
"But we also cannot continue to excuse poor decisions," he said. "And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars." He also said some of the industry's progress has scarcely been noticed.
He mentioned that the North American car of the year in 2008 was produced by GM.
"Let me be clear: The United States government has no interest in running GM; we have no intention in running GM," Obama said.
But that was at the same time he was formally announcing the departure of Wagoner, whom administration officials forced into retirement on Sunday in preparation for the president's remarks.
"This is not meant as a criticism 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 GM of the future," Obama said.
Other changes at GM include new directors on its board.
Fritz Henderson, GM's president and chief operating officer, became the new CEO.
Board member Kent Kresa, the former chairman and CEO of defense contractor Northrop was named interim chairman of the GM board.
"The board has recognized for some time that the company's restructuring will likely cause a significant change in the stockholders of the company and create the need for new directors with additional skills and experience," Kresa said in a written statement.
GM failed to make good on promises made in exchange for $13.4 billion in government loans.
In progress reports filed with the government in February, GM asked for $16.6 billion more and Chrysler wanted $5 billion more.
GM owes roughly $28 billion to bondholders. Chrysler owes about $7 billion in first- and second-term debt, mainly to banks.
GM owes about $20 billion to its retiree health care trust, while Chrysler owes $10.6billion.
GM and Chrysler employ about 140,000 workers in the U.S. In February, GM said it intended to cut 47,000 jobs around the globe, or almost 20 percent of its work force, close hundreds of dealerships and focus on four core brands: Cadillac, GMC and Buick.
Now they will focus on forcing concessions on the bondholders and the legacy costs for the retirees. They have them over a barrel. It will be do it or die. They will get their cuts and probably get common stock for it. I do not believe that it will go bankrupt. This will be similar to the Citicorp deal where loans are exchanged for common. The deal will make the bondholders and the unions whole at some point. The question for the current stockholders is will they be wiped out. I am sure that idea will be mentioned alot but I do not think that will happen. The reason I do not is that the stock is trading at 2.86 and they are giving you all day to see it before it goes to zero. That is not the way it works ..if they were going bankrupt the stock would be trading a 1 buck. I think this just a grandstand play by the administration to wring out every last dime out of the unions and the bondholders. That's right Obama is just like Bill (I feel you pain) Clinton and George (I feel no pain) Bush. They work for the man. Anyway I believe that GM stock and bonds are a steal now. ....the beat goes on Mikey
The company that emerges out of this will work and work well.
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