Mar 30, 2009 45 Comments ›› Pat Dollard
Obama kicks out GM CEO post here.
Wow! That Hugo Chavez thing just— … Um, what f-ing country did I wake up in this morning??? Am I speaking English?
Hello? Anyone? Beuller?
Obama Says He Has ‘No Intention’ of Running General Motors
The president says neither General Motors nor Chrysler submitted an acceptable restructuring plan, but that he’s giving them additional time to come back with new proposals.
President Obama said Monday his administration has “no intention” of running General Motors, even as the White House demanded the resignation of the automaker’s CEO and called for a “better business plan” before considering lending additional government aid.
As the administration seeks what Obama called “painful concessions” out of General Motors and Chrysler, the president insisted that he does not want them to become “wards of the state.”
But he said neither company has submitted an acceptable restructuring plan, so he’s giving them additional time to come back with new proposals.
“These companies — and this industry — must ultimately stand on their own, not as wards of the state,” Obama said at the White House.
Obama spoke after the White House forced GM CEO and Chairman Rick Wagoner to step down. The president said the move was not a “condemnation” of the chairman — rather a “recognition that it will take a new vision and new direction to create the GM of the future.”
He said his interest lies in giving the company the opportunity to make “much-needed changes” so that it can emerge more profitable and competitive.
“Let me be clear. The United States government has no interest in running GM. We have no intention of running GM,” Obama said.
GM and Chrysler, which employ about 140,000 workers in the U.S., faced a Tuesday deadline to submit completed restructuring plans, but neither company is expected to finish its work.
Instead, the administration will give Chrysler 30 days to work out a deal with Fiat and GM 60 days to come up with a new restructuring plan.
“We cannot, and must not, and we will not let our auto industry simply vanish,” Obama said. “This industry is like no other, it’s an emblem of the American spirit … And 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.”
Obama warned that these plans won’t prevent future hardships.
“There are jobs that won’t be saved, there are plants that may not reopen,” he said.
Obama said the companies and the government might have to consider “using our bankruptcy code” to help the companies restructure more efficiently. He said any such action would take place “with the backing of the U.S. government.”
The Obama administration, however, has decided not to require the automakers to immediately repay government loan money they previously received, since that would force both companies into Chapter 11 bankruptcy.
A senior administration official told FOX News, “calling in the loans would not be a productive exercise for the American taxpayer since the companies don’t have the money [to repay the loans] and it would simply put the companies into uncontrolled Chapter 11.”
A senior official said, “bankruptcy is not the goal,” although there may be a “role for a court supervised process to effect the restructuring … different from Chapter 11.”
Two additional parts of the plan include the government standing behind both car companies’ warranties during the restructuring periods and the White House naming a Labor Department official to minimize the impact of restructuring on communities where auto plants are located, by coordinating support for workers and their families.
Neither company is viable now, but Chrysler is an almost purely domestic company that has passed through several ownership changes and is not considered viable as a standalone company.
Officials say they are “confident GM can survive and thrive as a company … but it will take more significant restructuring.”
No decision has yet been made about how much working capital the government will provide GM during the restructuring period.
Chrysler’s potential deal with Fiat has a couple requirements: Fiat’s ownership must initially be less than the 35 percent U.S. government stake in the company, and it’s not to rise above 49 percent until the new loan money is fully repaid. Chrysler will be provided up to $6 billion if they reach an agreement acceptable to the government.
Obama aides had substantial criticism of bondholders, saying not only did GM’s bondholders fail to meet the targets for reducing the company’s liability under the loan agreement, but the loan agreement’s target weren’t adequate for the current market environment.
Officials denied Wagoner’s resignation was demanded as a condition for receiving more government aid. One official said “we wanted to start GM with a clean sheet of paper. We felt the change in leadership would assist that.”
The Bush administration late last year approved $17 billion in federal funds to help GM and Chrysler survive. GM took $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.
The Bush administration demanded both companies submit restructuring plans that the Obama administration would review. In progress reports filed with the government in February, GM asked for $16.6 billion more and Chrysler wanted $5 billion more.
Obama Outlines Plans for GM, Chrysler
WASHINGTON–Warning that they can’t depend on unending taxpayer dollars, President Barack Obama on Monday gave General Motors Corp. and Chrysler LLC a brief window to craft plans that would justify fresh government loans.
“We cannot, we must not, and we will not let our auto industry simply vanish,” President Obama said at the White House.
“What we are asking is difficult,” he said. “It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts.”
The remarks come a day after the administration ousted GM Chief Executive Rick Wagoner and rejected the restructuring plans that GM and Chrysler had hoped would lead to another infusion of government cash. Instead, the White House is giving GM 60 days to come up with a strategy for viability. Chrysler has a month to wrap up a partnership with Italy’s Fiat SpA.
The administration says a “surgical” structured bankruptcy may be the only way forward for GM and Chrysler, and President Obama held out that prospect Monday.
“I know that when people even hear the word ‘bankruptcy,’ it can be a bit unsettling, so let me explain what I mean,” he said. “What I am 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 that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold.”
The firms, hobbled by the economic downturn and years of reliance on sport-utility vehicles, will receive an unspecified amount of working capital from the government while they hone their new plans.
Without a Fiat deal, the administration said Chrysler won’t receive any more taxpayer dollars. The administration expressed confidence GM can survive with more drastic action. Toward that end, Chief Operating Officer Frederick “Fritz” Henderson will succeed Mr. Wagoner.
GM and Chrysler received a total of $17.4 billion in government loans in December and have requested another $22 billion to keep them going through this year. President Obama’s auto task force combed through the firms’ restructuring plans to judge if they merit the additional funds. The verdict released Sunday is that in their current form, the plans don’t justify any new taxpayer resources.
If Fiat and Chrysler reach a definitive alliance agreement, the government would consider investing as much as $6 billion more in Chrysler.
Despite the grim view of Chrysler, the administration’s task force said it had no intention of replacing CEO Robert Nardelli. Unlike Mr. Wagoner, who had been at the helm of GM since 2000, Mr. Nardelli is considered an auto-industry outsider who has only been in charge at Chrysler since the company was acquired by Cerberus Capital Management LP in 2007.
In addition to pushing out Mr. Wagoner, the task force said GM is in the process of replacing the majority of its directors. Kent Kresa, a longtime director, will serve as interim chairman. Mr. Wagoner will be replaced as CEO by Chief Operating Officer Frederick “Fritz” Henderson.
Administration officials on Sunday made it clear that an expedited and heavily supervised bankruptcy reorganization was still very much a possibility for both companies. One official, speaking of GM, compared such a proceeding with a “quick rinse” that could rid the company of much of its debt and contractual obligations.
The clearest losers appear to be the thousands of bondholders and lenders to both GM and Chrysler. In both cases, administration officials said that the companies were burdened by inordinate amounts of debt that would have to be scrubbed. Chrysler’s survival, the administration said, would require “extinguishing the vast majority” of the company’s secured debt and all of its unsecured debt and equity.
To assure consumers reluctant to buy GM or Chrysler cars, the government plans to take the unusual step of guaranteeing all warrantees on new cars from either company. These guarantees would lapse back to the companies once they return to health.
Mr. Wagoner had managed GM through some of its most difficult moments. The company hasn’t logged a profit since 2004, reporting losses since then of $82 billion. It nearly ran out of money at the end of 2008 before the Treasury Department provided emergency loans. GM’s stock was trading above $70 when Mr. Wagoner took over as CEO in June of 2000. The shares closed last week at $3.62, placing the company’s market capitalization at $2.21 billion. In Monday trading on the New York Stock Exchange, GM shares were down 54 cents, or 15%, to $3.08.
Mr. Wagoner’s tenure came amid challenges that weren’t entirely of his own making–including costly retiree benefits and union contracts that predate him, and the recent deep recession. Yet GM by most measures performed worse than other auto companies. Among the key decisions that hurt the company: a huge bet on trucks and SUVs that piled up on dealers’ lots unsold as high gasoline prices drove Americans to look for more fuel economy offered by rival companies.
Mr. Wagoner was asked to step down on Friday by Steven Rattner, the investment banker picked last month by the administration to lead the Treasury Department’s auto-industry task force. Mr. Rattner broke the news to Mr. Wagoner in person at his office at the Treasury, according to an administration official. Afterward, Mr. Rattner met one-on-one with Mr. Henderson, who will fill in as GM’s CEO.
“On Friday I was in Washington for a meeting with administration officials,” Mr. Wagoner said in a statement released by GM. “In the course of that meeting, they requested that I ‘step aside’ as CEO of GM, and so I have.”
GM spokesman Steve Harris declined to comment.
In a statement released by GM Sunday night, Mr. Kresa said: “The Board has recognized for some time that the Company’s restructuring will likely cause a significant change in the stockholders of the Company and create the need for new directors with additional skills and experience.”
Mr. Wagoner’s removal shows that the sacrifices could cut deep. The departure of the company’s top executive promises to further shake up a company that has already been through considerable change over the past six months. The 56-year-old executive had been scrambling to craft a strategy aimed at maintaining leadership in the global sales chase with Toyota Motor Corp. and making big profits in emerging markets.
But Mr. Wagoner’s plans came crashing down in the second half of 2008 as the company ran short of cash and was forced to ask the government for billions of dollars in aid. At the same time, his executive team started dismantling several parts of the company, including a plan to shed several brands, slow the pace of new-product introductions and sell stakes in international operations.
The president’s auto task force has spent more than a month digging into the restructuring plans that GM and Chrysler submitted last month. The team has struggled to make two determinations: when will the steep plunge in car sales end and what will the market look like once it revives.
GM has based its revival plans on the U.S. market rebounding to sales of 14.3 million vehicles a year in 2011, up from a rate of about nine million vehicles so far this year. Many analysts now consider GM’s short-term forecasts to be overly optimistic.
The two companies received a total of $17.4 billion in government loans in December and have requested another dose to keep them going through this year. Of the $21.6 billion, GM is seeking $16.6 billion more, while Chrysler has asked for $5 billion more.
Among challenges the administration faced leading up to this weekend’s decision, foremost were the efforts to draw steep concessions from the United Auto Workers union and from the bondholders.
Attempts to solidify deals with the UAW and bondholders were slowed by disagreements by both parties over how exactly the other party needed to budge. The UAW, for instance, insists it already made health-care concessions in 2005 and 2007, and argues that the bondholders have never been asked to concede anything.
“I don’t see how the UAW will do anything until they see what the bondholders will give up,” one person involved in the negotiations on behalf of the UAW said Sunday.
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President Obama’s remarks on U.S. car industry
(Reuters) – Following are excerpts from President Barack Obama’s Monday remarks about the U.S. auto industry’s restructuring effort: Skip related content
In recent months, my Auto Task Force has been reviewing requests by General Motors and Chrysler for additional government assistance as well as plans developed by each of these companies to restructure, modernize, and make themselves more competitive.
Year after year, decade after decade, we have seen problems papered-over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we have reached the end of that road.
We cannot, we must not, and we will not let our auto industry simply vanish. 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.
That is why the federal government provided General Motors and Chrysler with emergency loans to prevent their sudden collapse at the end of last year — only on the condition that they would develop plans to restructure. In keeping with that agreement, each company has submitted a plan to restructure.
But after careful analysis, we have determined that neither goes far enough to warrant the substantial new investments that these companies are requesting. And so today, I am announcing that my administration will offer GM and Chrysler a limited period of time to work with creditors, unions, and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars; a period during which they must produce plans that would give the American people confidence in their long-term prospects for success.
What we are asking is difficult. It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognise that they cannot hold out for the prospect of endless government bailouts. Only then can we ask American taxpayers who have already put up so much of their hard-earned money to once more invest in a revitalized auto industry.
So let me discuss what measures need to be taken by each of the auto companies requesting taxpayer assistance, starting with General Motors. While GM has made a good faith effort to restructure over the past several months, the plan they have put forward is, in its current form, not strong enough.
However, after broad consultations with a range of industry experts and financial advisors, I’m confident that GM can rise again, provided that it undergoes a fundamental restructuring. As an initial step, GM is announcing today that Rick Wagoner is stepping aside as Chairman and CEO. 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 a new vision and new direction to create the GM of the future.
In this context, my administration will offer General Motors adequate working capital over the next 60 days. During this time, my team will be working closely with GM to produce a better business plan.
They must ask themselves: have they consolidated enough unprofitable brands? Have they cleaned up their balance sheets or are they still saddled with so much debt that they can’t make future investments? And above all, have they created a credible model for how to not only survive, but succeed in this competitive global market?
Let me be clear: the United States government has no interest or 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.
The situation at Chrysler is more challenging. It is with deep reluctance but also a clear-eyed recognition of the facts that we have determined, after a careful review, that Chrysler needs a partner to remain viable. Recently, Chrysler reached out and found what could be a potential partner — the international car company Fiat, where the current management team has executed an impressive turnaround. Fiat is prepared to transfer its cutting-edge technology to Chrysler and, after working closely with my team, has committed to building new fuel-efficient cars and engines here in America.
We have also secured an agreement that will ensure that Chrysler repays taxpayers for any new investments that are made before Fiat is allowed to take a majority ownership stake in Chrysler.
Still, such a deal would require an additional investment of tax dollars, and there are a number of hurdles that must be overcome to make it work. I am committed to doing all I can to see if a deal can be struck in a way that upholds the interests of American taxpayers.
That is why we will give Chrysler and Fiat 30 days to overcome these hurdles and reach a final agreement — and we will provide Chrysler with adequate capital to continue operating during that time. If they are able to come to a sound agreement that protects American taxpayers, we will consider lending up to $6 billion to help their plan succeed. But if they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollar to keep Chrysler in business.
While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plans they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger.
Now, I know that when people even hear the word “bankruptcy” it can be a bit unsettling, so let me explain what I mean. What I am 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 that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold.
What I am not talking about is a process where a company is broken up, sold off, and no longer exists. And what I am not talking about is having a company stuck in court for years, unable to get out.
It is my hope that the steps I am announcing today will go a long way towards answering many of the questions people may have about the future of GM and Chrysler. But just in case there are still nagging doubts, let me say it as plainly as I can — if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always. Your warrantee will be safe.
In fact, it will be safer than it’s ever been. Because starting today, the United States government will stand behind your warrantee.
AUTO SALES SUPPORT
Therefore, to support demand for auto sales during this period, I’m directing my team to take several steps. First, we will ensure that Recovery Act funds to purchase government cars go out as quickly as possible and work through the budget process to accelerate other federal fleet purchases as well.
Second, we will accelerate our efforts through the Treasury Department’s Consumer and Business Lending Initiative. And we are working intensively with the auto finance companies to increase the flow of credit to both consumers and dealers.
Third, the IRS is today launching a campaign to alert consumers of a new tax benefit for auto purchases made between Feb 16 and the end of this year — if you buy a car anytime this year, you may be able to deduct the cost of any sales and excise taxes. This provision could save families hundreds of dollars and lead to as many as 100,000 new car sales.
Finally, several members of Congress have proposed an even more ambitious incentive program to increase car sales while modernizing our auto fleet.
I want to work with Congress to identify parts of the Recovery Act that could be trimmed to fund such a program, and make it retroactive starting today.
DIRECTOR OF RECOVERY
I am designating a new Director of Recovery for Auto Communities and Workers to cut through red tape and ensure that the full resources of our federal government are leveraged to assist the workers, communities, and regions that rely on our auto industry.
Edward Montgomery, a former Deputy Labour Secretary, has agreed to serve in this role. Together with Labour Secretary Solis and my Auto Task Force, Ed will help provide support to auto workers and their families, and open up opportunity in manufacturing communities. Michigan, Ohio, Indiana, and every other state that relies on the auto industry will have a strong advocate in Ed.