Obama Says Bankruptcy Might Be Needed for GM, Chrysler to Survive

The government said that neither company had met the strict conditions laid down under an earlier $17.4 billion government bailout agreed late last year

President Obama said recovery for the auto sector will require "unprecedented" efforts, and that bankruptcy may be needed for GM and Chrysler to survive. "We cannot, we must not, and we will not let our auto industry simply vanish," Obama said as his task force unveiled its findings.

"It is a pillar of our economy that has held up the dreams of millions of our people. But we also cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars."

Obama said that if GM and Chrysler cannot come up with viable plans to return to profitability, they may need to use the bankruptcy process "as a mechanism to help them restructure quickly and emerge stronger."

He said that if this option is used, it would mean that the firms "with the backing of the U.S. government," can "quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success."

"What I am not talking about is a process where a company is broken up, sold off, and no longer exists. And what I am not talking about is having a company stuck in court for years, unable to get out," the president added.

To help the carmakers survive, Obama said, "it will take an unprecedented effort on all our parts -- from the halls of Congress to the boardroom, from the union hall to the factory floor -- to see the auto industry through these difficult times."

The task force warned neither company had met the strict conditions laid down under an earlier $17.4 billion government bailout agreed late last year. The plans submitted by GM and Chrysler "did not establish a credible path to viability," the task force report said. "In their current form, they are not sufficient to justify a substantial new investment of taxpayer resources. Each will have a set period of time and an adequate amount of working capital to establish a new strategy for long-term economic viability."

But the task force said that privately held Chrysler, the third largest of the Detroit Big Three, had no viability as a standalone company and demanded it seek a partner. Obama said the situation at Chrysler "is more challenging" and added, "it is with deep reluctance but also a clear-eyed recognition of the facts that we have determined, after a careful review, that Chrysler needs a partner to remain viable." GM and Chrysler have been seeking the extra cash to weather the economic crisis and avert bankruptcy that executives say could have harsh repercussions.

Obama said the woes of the sector are "not the fault of all the families and communities that supported manufacturing plants throughout the generations. Rather, it is a failure of leadership -- from Washington to Detroit -- that led our auto companies to this point."

He also backed a plan to offer tax incentives to consumers trading in old cars for newer fuel-efficient models to boost the auto industry and help the environment.

Obama said he would support an idea endorsed by several members of Congress -- an "ambitious incentive program to increase car sales while modernizing our auto fleet." "Such fleet modernization programs, which provide a generous credit to consumers who turn in old, less fuel-efficient cars and purchase cleaner cars have been successful in boosting auto sales in a number of European countries," he said.

Copyright Agence France-Presse, 2009

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