Obama says that GM may have to go bankrupt!!! Then it will totally effected to all the auto motif industry. Oh Delphi..
President Barack Obama prepared the nation Monday for the possibility that General Motors will go bankrupt, rejecting the revival plans put forth by GM and Chrysler and ousting GM Chief Executive Rick Wagoner.
“We cannot and must not and we will not let our auto industry simply vanish,” Obama said. At the same time, he cautioned that he won’t support “an unending flow” of tax dollars to bail out the firms. “These companies and this industry must ultimately stand on their own, not as wards of the state.”
Obama announced that his automotive task force concluded that GM must be vastly restructured to have any hope of survival. The task force said it would provide the company with 60 days operating capital to give it time to begin an overhaul, and confirmed that Wagoner, who’s been with the automaker since 1977, was ousted in order to make a clean start. GM Operating Chief Fritz Henderson will take the company’s helm.
The president confirmed that Chrysler, which is privately owned by Cerberus Capital Management, will get 30 days of operating funds, but said it must merge with another carmaker to remain viable. Chrysler didn’t get the $5 billion in additional funds that it had sought.
In a statement on its corporate Web site Monday afternoon, Chrysler Chairman and Chief Executive Robert Nardelli announced that his company had reached a tentative merger “framework” toward a deal with Italian carmaker Fiat.
“We are pleased that Chrysler, Fiat and Cerberus have reached agreement on the framework of a global alliance, supported by the U.S. Treasury,” the statement said. “Chrysler has consistently said that the alliance with Fiat enhances its business model that expands its global competitiveness. We appreciate the willingness of the Task Force, along with industry and financial experts, to consult closely with us in order to achieve this significant step.”
Later Chrysler issued a clarification to its statement, saying the company remains short of a final deal and that “substantial hurdles” must first be resolved.
Nardelli hinted that this approach will allow Chrysler to make more fuel-efficient cars and create new jobs in the U.S. The agreement, he said, “gives U.S. consumers more choices for environmentally advanced vehicles; gives its dealers more of the products they need to be successful; helps stabilize the supplier base; and allows Chrysler to pay back government loans sooner.”
Much of Obama’s speech focused on GM, which is seeking more than $16 billion in additional taxpayer bailout funds to stay afloat. GM’s negotiations with the United Auto Workers union and bondholders fell far short of what Obama’s task force required by a March 31 deadline, and Obama suggested that bankruptcy might be the best option.
“Now, while Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they develop. That may mean using our bankruptcy code as a mechanism to help them restructure and emerge stronger,” Obama said, adding that he doesn’t foresee a long court battle.
“What I’m talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts … a tool we can use, even as workers (are) staying on the job building cars that are being sold.”
That’s a reference to a “prepackaged” bankruptcy, where all the details are worked out in advance, and then the company enters into a limited form of bankruptcy to restructure its debts. What would be unique about such a deal: It would happen to a large company with more than $35 billion in debt.
GM and Chrysler already have received $17.4 billion in government rescue money. The two companies faced a Tuesday deadline for the government to approve plans they’d submitted weeks ago in hopes of persuading the Obama administration that they could remain in business and deserved additional money.
In a briefing for reporters late Sunday, administration officials said that GM has made no progress in talks with its bondholders. It has about $35 billion in debt – $27 billion of it unsecured – and at risk if GM is forced into bankruptcy. GM was expected to reduce that amount to $9 billion through a voluntary exchange of bonds for new shares of GM stock, but that hasn’t happened as yet.
Chrysler is smaller than GM, yet it owes banks more than $8 billion, and the financially weakened banks want to be repaid.
Aware that the cloud hanging over GM and Chrysler could further discourage sales and deepen the economic slump, Obama also announced a plan in which “the United States government will stand behind your warranty.” Although he didn’t spell out how the guarantee would work, it’s intended to give consumers enough confidence to buy GM and Chrysler vehicles amid a period of uncertainty.
Because auto-producing areas of the nation are suffering, Obama appointed a former Labor Department deputy secretary, Edward Montgomery, to lead a special panel to help these areas recover from steep job losses.
Taking a cue from Europe, Obama also said that he’d speed up government purchases of fleet cars and try to rework the recent stimulus package to create a cash-for-clunkers program, similar to a successful effort in Germany. These programs give a tax credit to consumers who trade in old cars for environmentally cleaner and more fuel-efficient newer vehicles.
While the actions announced Monday, especially the ousting of Wagoner, signal aggressive moves by the federal government, Obama tried to play down its involvement.
“Let me be clear, the United States government has no interest in running GM. We have no intention of running GM. What we are interested in is giving GM an opportunity to finally make those much-needed changes that will let them emerge from this crisis a stronger and more competitive company,” he said.
Republicans saw it differently.
“This is a major power grab by the White House on the heels of another power grab from (Treasury) Secretary (Timothy) Geithner, who asked last week for the freedom to decide on his own which companies are ‘systemically’ important to our country and worthy of taxpayer investment and which are not,” said Sen. Bob Corker, R-Tenn., in a statement.
Corker led a Republican revolt against auto bailouts late last year, arguing that bankruptcy proceedings are a better way to go.
“This is a marked departure from the past, truly breathtaking, and should send a chill through all Americans who believe in free enterprise. I worry that in one fell swoop we’ve lost our moral high ground throughout the global community as it relates to chastising other countries that use strong-arm tactics to invade on private property rights,” he said Monday.
Not above politicking, however, the freshman senator said that decisions on which plants to keep open could break down party lines. Referencing the Saturn assembly plant in his home state, Corker said that if decisions are made on efficiency and job skills then “our GM plant in Spring Hill, Tennessee, should do very well.”
Democrats were more supportive.
Senate Majority Leader Harry Reid, D-Nev., commended Obama for his “firm resolve” with GM and Chrysler, and said in a statement that Congress also “will not give these companies a blank check. As we have maintained since the earliest days of this crisis, if these companies do not develop strong plans to remain viable in the long term, they will lose our support.”