GM, Chrysler Get Ultimatum From Obama on Turnaround
President Obama asserted unprecedented government control over the auto industry Monday, rejecting turnaround plans from General Motors and Chrysler and raising the prospect of controlled bankruptcy for either ailing auto giant.
Eager to reassure consumers, Obama also 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.
With his words, Obama underscored the extent to which the government is now dictating terms to two of the country's iconic corporations, much as it has already taken an ownership stake in banks, the insurance giant AIG and housing titans Fannie Mae and Freddie Mac .
In an extraordinary move, the administration forced the departure of Rick Wagoner as CEO of General Motors over the weekend, and implicit in Obama's remarks was that the government holds the ability to pull the plug on that company or Chrysler.
Uncertainty about the industry's fate sent stocks tumbling, with the Dow Jones industrial average losing almost 300 points in afternoon trading.
General Motors stock plunged in reaction. Chrysler is not publicly traded. Ford Motor , 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. It also demanded both companies submit restructuring plans that the Obama administration would review.
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 said Chrysler's situation is more perilous, and the government will give the company 30 days to overcome hurdles to a merger with Fiat, the Italian automaker. If they are successful "we will consider lending up to $6 billion to help their plan succeed," Obama said.
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 carmakers, 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. Obama spoke at the White House with U.S. automakers at yet another crossroads.
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.