Archive for Tuesday, March 31, 2009

Government puts GM and Chrysler on a short leash

March 31, 2009

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— President Barack Obama asserted unprecedented government control over the auto industry Monday, bluntly rejecting turnaround plans by General Motors Corp. and Chrysler LLC, demanding fresh concessions for long-term federal aid and raising the possibility of quick bankruptcy for either ailing auto giant.

Obama took the extraordinary step of announcing the government will back new car warranties issued by both GM and Chrysler, an attempt to reassure consumers their U.S.-made purchases will be protected even if the companies don’t survive.

“I am absolutely committed to working with Congress and the auto companies to meet one goal: The United States of America will lead the world in building the next generation of clean cars,” Obama said in his first extended remarks on the industry since taking office nearly 10 weeks ago. And yet, he added, “our auto industry is not moving in the right direction fast enough to succeed.”

Obama, flanked by several administration officials at the White House, announced a short-term infusion of cash for the firms, and said it could be the last for one or both.

Chrysler, judged by the administration as too small to survive, got 30 days’ worth of funds to complete a partnership with Fiat SpA, the Italian manufacturer, or some other automaker.

GM got assurances of 60 days’ worth of federal financing to try and revise its turnaround plan under new management with heavy government participation. That would involve concessions from its union workers and bondholders. The administration engineered the ouster of longtime CEO Rick Wagoner over the weekend, an indication of its deep involvement in an industry that once stood as a symbol of American capitalism.

Obama’s announcement underscored the extent to which automakers have been added to the list of large corporations now operating under a level of government control that seemed unthinkable less than a year ago. Since last fall, the Bush and Obama administrations, often acting in concert with the Federal Reserve, have engineered the takeover of housing titans Fannie Mae and Freddie Mac, seized a large stake in several banks and installed a new CEO at bailed-out insurance giant American International Group.

Other presidents have forced showdowns with major industries, with mixed results. Harry Truman’s decision to nationalize the steel industry on the eve of a strike in 1952 was ruled unconstitutional by the Supreme Court. But Ronald Reagan succeeded in busting the air traffic controllers’ union three decades later.

The latest addition to the list, the once-proud auto industry, has struggled with foreign competition for more than a generation, then was further battered by the recession and credit crisis gripping the economy. Obama said 400,000 industry jobs have been lost in the past year alone, many in Michigan.

Under Fritz Henderson, newly named as CEO, General Motors issued a statement saying it hopes to avoid bankruptcy, but will “take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process.”

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.

Sergio Marchionne, CEO of Fiat, issued a statement calling the Obama administration’s involvement “tough but fair, and we believe we will arrive at a result that will establish a credible future for this crucial industrial sector and that assigns the right priority to the repayment of U.S. taxpayers’ funds.”

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