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.
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 Grumman Corp., was named interim chairman of the GM board. In a statement, Henderson said the manufacturer would work "to make the fundamental and lasting changes necessary to reinvent GM for the long term."
Chrysler Chairman Bob Nardelli sought to assure customers, dealers, suppliers and employees that the automaker "will operate 'business as usual' over the next 30 days," while working closely with the government and Fiat to secure the support of stakeholders.
The Obama move comes amid public outrage over bonuses paid to business leaders and American International Group executives—set against a severely ailing economy.
GM failed to make good on promises made in exchange for $13.4 billion in government loans. Chrysler, meanwhile, has survived on $4 billion in federal aid during this economic downturn and the worst decline in auto sales in 27 years.
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 $10.6 billion.
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—Chevrolet, Cadillac, GMC and Buick.