U.S. Toughens Conditions for GM, Chrysler Aid

March 30, 2009
GM's CEO forced out

The White House toughened its stand on March 30 on new aid for ailing automakers, saying General Motors needs to "substantially" step up restructuring and Chrysler must seal a deal with Fiat.

President Barack Obama's auto task force said neither firm is "viable" at present but that both have a chance to avert bankruptcy if the new moves are taken.

GM chairman and chief executive Rick Wagoner was forced out at the request of Obama, as the task force unveiled grim prospects for the companies demanding an extra $21.6 billion in loans.

In two separate reports, 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.

Obama will unveil his plan for the future of the industry at 11:00 am on March 30 with the two companies desperately seeking to steer out of the economic downturn that has sent global car sales plunging.

But the task force said Chrysler, the third largest of the Detroit Big Three, had no viability as a standalone company and demanded it seek a partner. The automaker has been given an extra 30 days to conclude its proposed alliance with Italian auto giant Fiat, the New York Times reported.

GM meanwhile was granted an extra 60 days to come up with a new cost-cutting plan, the newspaper said, after the White House slammed its restructuring proposals as insufficient, saying it needed to be much more aggressive if it was to have a long-term future.

Two senior White House officials told the Times that some form of bankruptcy could still be an option for one or both of the companies, describing it as a "quick court-supervised restructuring."

In the case of GM, the task force noted that while the company has made meaningful progress in its turnaround plan, "the progress has been far too slow" and it continued to lag behind its competitors. "As a result, the president's designee has found that General Motors' plan is not viable as it is currently structured," the report said. However, the experts expressed confidence "there could be a viable business within GM" if the company and its stakeholders engage in a "substantially more aggressive" restructuring plan.

The findings were grimmer for Chrysler, which the task force said had a "fundamentally disadvantaged operating structure and a limited set of desirable products" that makes "standalone viability for the business highly challenging." The auto firm's recovery plan was "not viable as currently structured," the report said.

But the task force recommended that if Chrysler was able to develop a partner which would bolster its product development and allow it to enter the small car market, "Chrysler has some prospects for long term viability."

GM meanwhile confirmed Wagoner's immediate resignation early on March 30 and said he would be replaced by Fritz Henderson, the company's current president and chief operating officer.

In a message posted on the company's website, Wagoner, 56, who took over the helm of GM in 2000, said he had been requested to resign in talks on March 27 in Washington with Obama administration officials.

Ford, the other member of Detroit's Big Three, has said it has enough cash to survive the downturn without government aid.

Obama warned on Mach 29 the automakers needed to do more to earn a larger government handout. "They're not there yet," Obama told CBS television. "We think we can have a successful U.S. auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean, mean and competitive than it currently is."

And he added that to ride out the crisis there had to be "sacrifices from all parties involved, management, labor, shareholders, creditors, suppliers, dealers."

Copyright Agence France-Presse, 2009

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