US PRESIDENT Barack Obama has told General Motors (GM) and Chrysler that they must make radical changes within weeks if they are to receive the government funding they need to survive.
Rejecting restructuring plans submitted by the two Detroit carmakers, Mr Obama gave Chrysler 30 days to form an alliance with Italian manufacturer Fiat and told GM it had 60 days to come up with an acceptable reorganisation plan.
Within minutes of Mr Obama’s announcement, Chrysler said it had reached agreement with Fiat and Cerberus, the capital management firm that owns 80 per cent of the US company, on a global alliance backed by the US Treasury.
“By providing Chrysler with product and platforms, technology co-operation and global distribution, Fiat strengthens Chrysler’s ability to create and preserve US jobs; gives US consumers more choices for environmentally advanced vehicles; gives its dealers more of the products they need to be successful; helps stabilise the supplier base; and allows Chrysler to pay back government loans sooner,” said Chrysler chief executive Bob Nardelli.
Before Mr Obama issued his ultimatum to the carmakers, GM chief executive Rick Wagoner agreed to step down and the White House said other management changes would follow.
“We cannot, we must not, and we will not let our auto industry simply vanish. This industry is, like no other, an emblem of the American spirit, a once and future symbol of America’s success,” Mr Obama said yesterday.
“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. These companies and this industry must ultimately stand on their own, not as wards of the state.”
GM and Chrysler, which have already received more than $17 billion (€12.9 billion) in bailouts, had requested a further $20 billion, but Mr Obama said their restructuring proposals were inadequate.
“After careful analysis, we have determined that neither goes far enough to warrant the substantial new investments that these companies are requesting,” he said.
“My administration will offer GM and Chrysler a limited period of time with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars.”
Mr Obama said the Detroit carmakers may have to go into a controlled form of bankruptcy to shed debt and renegotiate contracts with unions before they can return to a sound footing. He insisted, however, that bankruptcy would not mean the liquidation of the companies and offered federal backing for warrantees issued by both firms so consumers can be confident GM and Chrysler can be maintained and serviced.
Mr Obama said his administration was considering introducing a scheme similar to one that has proved successful in Germany, under which the government would give car owners a subsidy to replace their cars with more energy-efficient models.
“These efforts, as essential as they are, are not going to make everything better over night. There are jobs that won’t be saved. There are plants that may not reopen,” he said.
“There’s little I can say that can subdue the anger or ease the frustration of all whose livelihoods hang in the balance because of failures that weren’t theirs.”
The tough approach the White House has taken towards the car industry is in contrast with the latitude it has offered the financial industry, which has received hundreds of billions of dollars in federal bailouts without senior management figures being forced out.
The Dow Jones fell almost 300 points following yesterday’s announcement, led by a sell-off in banking shares.
Chrysler is not publicly traded, but GM shares fell by 21 per cent.
