Obama ready to let automakers go into bankruptcy if they fail this one last time
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(WASHINGTON) US President Barack Obama said yesterday General Motors Corp (GM) and Chrysler have one last, limited chance to 'fundamentally restructure' and that the government was prepared to let them slide into structured bankruptcy if their plans fail.
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| Reshaping GM and Chrysler: Mr Wagoner (above) was forced by the Obama administration to resign. Commenting on the ouster, Mr Obama said: 'This is not meant as a condemnation of Mr Wagoner, who has devoted his life to this company. Rather, it's a recognition that it will take new vision and new direction to create the GM of the future.' |
After his administration forced GM chief executive officer Rick Wagoner to resign and pressed Chrysler to form a partnership with Italy's Fiat SpA to get more taxpayer aid, Mr Obama said that company creditors, shareholders, workers, dealers and suppliers will be expected to make more sacrifices.
Stocks around the world plunged and the US dollar fell against the yen. On Wall Street, the Dow Jones was down 276.46 points or 3.56 per cent to 7,499.72 at midday.
London closed down 3.49 per cent. Tokyo earlier plunged 4.53 per cent and Hong Kong plummeted 4.70 per cent.
GM plunged 58 cents, or 16 per cent, to US$3.04 at 11.17am in New York Stock Exchange composite trading. The shares tumbled 87 per cent last year, the most among the 30 stocks in the Dow Jones Industrial Average.
'We cannot, we must not, and we will not let our auto industry simply vanish,' President Obama said at the White House, announcing new and final deadlines for the No. 1 and No. 3 US carmakers to remake themselves. 'But we cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars.'
If plans for carmakers fail, the administration is prepared to let them slide into a structured bankruptcy that he said would make it easier GM and Chrysler to clear away old debts and emerge as smaller, leaner operations.
The administration forced the resignation of Wagoner before announcing its conditions for continued support.
Fritz Henderson, GM's president and chief operating officer, becomes CEO. GM is also replacing most of its board and must increase reliance on producing more fuel-efficient vehicles, under findings of the administration's auto task force. Chrysler CEO Robert Nardelli was allowed to keep his position.
Ford Motor Co, the third of the industry's Big Three, has taken no government money and is not affected.
'This is not meant as a condemnation of Mr Wagoner, who has devoted his life to this company,' President Obama said. 'Rather, it's a recognition that it will take new vision and new direction to create the GM of the future.'
GM will get 'adequate working capital' over the next 60 days, during which time the administration's auto task force will work with the company to assess whether the company has consolidated enough brands and its debt load.
Mr Obama said conditions at Chrysler are 'more challenging', and a review of the No. 3 carmaker shows 'that Chrysler needs a partner to remain viable'. As a sweetener, Chrysler could get up to US$6 billion and if it completes the alliance with Fiat within 30 days.
The removal of Mr Wagoner and the demand that Chrysler ally with Fiat underscore the administration's conclusion that the carmakers had not done enough to prove they can survive amid the worst US car market in 27 years.
The moves also reflect growing criticism of government bailouts.
Mr Obama said the government 'has no interest or intention or running GM. What we are interested in is giving GM an opportunity' to emerge from its financial crisis.
Mr Obama announced he's giving carmakers a grace period, a limited number of days to work with creditors, unions, and other stakeholders to 'fundamentally restructure' in a way that justifies further aid.
During this time, he said, carmakers 'must produce plans that would give the American people confidence in their long-term prospects for success'. Mr Obama said the bankruptcy code, if required, wouldn't be used to break up the companies.
Instead, the companies would use the code, with the backing of the government, to clear away old debts 'so they can get back on their feet'.
GM owes roughly US$28 billion to bondholders. Chrysler owes about US$7 billion in first and second-term debt, mainly to banks. GM owes about US$20 billion to its retiree healthcare trust, while Chrysler owes US$10.6 billion. -- Bloomberg, AFP, AP
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