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President Obama Tells Automakers Their Viability Plans Are Lemons
March 30, 2009 12:00 AM
If the viability plans that General Motors and Chrysler submitted to the Obama administration in February were cars, they would be -- at least as far as the president is concerned -- Edsels.
In order to receive $21.5 billion more in loans from the U.S. government, GM and Chrysler -- which have already received $17.4 billion in loans ($13.4 billion for GM and $4 billion for Chrysler) -- were required to come up with viability plans detailing their restructuring plans and ways they would compete in a marketplace where their sales are slumping and products are berated as anachronistic.
Senior administration officials say that the GM plan, in its current form, "is not viable and will need to be restructured substantially."
The first step in that restructuring: leaders of President Obama's auto task force on Friday told chairman and CEO Rick Wagoner to tender his resignation. He did.
GM needed to turn a new page, a senior administration official explained.
"Having a change in leadership would assist with that fresh start and be consistent with this clean sheet approach," the official said.
Another official insisted there was no quid pro quo requiring Wagoner to leave if the company wanted further government support.
In addition to Wagoner’s departure, GM will start the process of replacing a majority of its board in the next few months.
"We are very confident that General Motors can survive and thrive as a company," a senior official says. "We believe it has many, many assets including its global brand; its R&D has made a lot of progress" in making cars "more attuned to marketplace."
That said, the administration found GM's viability plan too passive about its debt and underperforming brands and dealers, and too unrealistic about how much sales are going downhill. The Obama administration will provide capital as the new CEO develops a new plan; GM officials have 60 days to create a "leaner, more conservative but in some ways more aggressive business plan."
The news for Chrysler is far more dire: essentially, merge or die.
"The Chrysler plan is not likely to lead to viability on a standalone basis," the Obama administration officials say, encouraging the company to aggressively pursue the merger deal with Fiat. Assailing "the inferior quality of its existing product portfolio" and its over-reliance on trucks, the administration says "Chrysler must seek a partner in order to achieve the scale and other important attributes it needs to be successful in the global automotive industry."
Chrysler has 30 days to work it out. The administration will offer capital to the company. If Chrysler and Fiat are able to reach an agreement, the administration will consider loaning up to $6 billion to Chrysler. If they are not, the administration will not consider lending Chrysler any money.
In neither instance -- GM or Chrysler - would the administration specify how much capital it might entail to keep the companies going for another 30-60 days.
For both companies, the Obama team says bankruptcy is possible.
"Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way," an official says, explaining that a structured bankruptcy process could make it easier for GM and Chrysler "to clear away old liabilities so they can get on a path to success while they keep making cars and providing jobs in our economy."
Obama will make two other announcements Monday.
One, the president will announce a new government-backed warranty program for all new GM and Chrysler vehicles purchased during this restructuring period. A fund will be set up equal to 125 percent of the total cost to pay for warranty service. The auto makers will contribute 15 percent while the government will provide 110 percent, with the money coming from the economic stabilization funds, the gift that keeps on giving. A separate company will hold the funds and pay the claims even if one of the auto manufacturers goes into bankruptcy or out of business.
The president will also name a Director of Recovery for Auto Workers and Communities. Edward Montgomery, labor economist and former Deputy Secretary of Labor, will serve in the role, helping autoworkers, communities, and regions adversely impacted by the failure of the automakers find new jobs, businesses, and industries.
-- Jake Tapper and Charles Herman
March 30, 2009 | Permalink | Share | User Comments (127)
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I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Joannah
Posted by: Joannah | Apr 2, 2009 3:02:59 AM
With all the Tax Payer Billions Invested to keep the American Zombie Car Makers Alive and Breathing...
Barely that is ?
----------------
Here's the Irony...
1. Most of You Own a Japanese Car or German Car.
2. Most of You Would Not Buy a Used GM or Chrysler Car.
3. Most of You will Jump at the Chance to Attack The Government or President Obama...
Yet had little or Nothing to say about George W. Bush for the past [[8 Years]] of Economic Devestation. ...
"Destroying this Country's Wealth ,as well as the Un-Regulated Greedy, Corporate CEO's and Wall Street Heavies, who had and are still having a Ball with Your Tax Pay Monies...
Note: You, the Tax Payer are the New Owners of ...
GM:USA
and
Chrysler:USA
Spare me, Your Whining & Moaning...
Bush, Obama and the Congress saved BOTH Car Giants from being Down and Done for, with Tax Payers Money !!
You Contraries.
-----------
GM and Chrysler are not...
[[Private Companies]] Any More..
They Cease to be Private, when Billions of Tax Payers Dollars...
Your and My Tax Dollars were Heavily Invested in them, to keep them in Business...
You Ding Dongs !!
Posted by: O. | Mar 31, 2009 8:23:13 AM
Quote from Don Webb:
=================
Since when can the US government oppress a private company to fire its CEO?
Obama = The ruin of the United States.
=================
Answer: Since these private[sic...these are public companies, whose falling stock are bankrupting pension plans], are asking for billions upon billions of $ from the government.
Obama = The salvation of the United States from failed Reagonomics.
Posted by: SueInSC | Mar 30, 2009 10:39:12 PM
People. This is scary, its never happened before and everyone is rightfully nervous. All I can say is at least someone is doing something and lets see what happens. BTW I work at Ford in Oakville Canada and am very interested in what happens.
Posted by: miltonmike | Mar 30, 2009 7:10:11 PM
The president is again trying to prove that he can and should control every aspect of our fading free country. But he should lead by example and by the same communist standards. Do I see the president and all his security people courting around in a Prius or Civic? Doubt it. Do I see the president putting force where force should have been placed first? The wall street crooks. I doubt it. The president keeps pumping more and more money into a lost cause: people that overspent beyond their means and banks that took advantage of people who didn't have enough common sense to check out what an ARM loan was before falling into the trap of "if it looks too good to be true, it probably is". My wife and I have lost 50% of our retirement funds because of greedy pigs and I feel no remorse for any CEO that gets canned or for any auto maker that puts out sub-standard vehicles or any homeowner who spent beyond their means. Let's get back to American standards of hard work, high morals and character that doesn't and shouldn't have to be questioned. That includes all of our employees in Washington D.C. that we pay for with our tax dollars on a daily basis. To this point the president has been all talk and all spend. The day that the stock market rises and keeps rising is the day that confidence will be instilled in America. How can a president expect me to go out and stimulate the economy when half my life savings are gone and he has just put another trillion or two out the door for our kids to inherit and who are going to have to survive this mess. Let the auto companies fail, let the big banks fail (the bank in our small town is blossoming), and let the people fail that spent beyond their means. Then and only then will be get back on our feet. We don't need a 3 trillion dollar welfare system on top of what we already have.
Posted by: Like it is | Mar 30, 2009 5:49:24 PM
"Anger and hate are elements of childhood and youth. I think that everyone here on this site who make comments might be older but, maybe not beyond this period (youth or childhood) in their lives. '
I haven't seen any "hate or anger", as you say, - just disagreement and opinions from different posters. You are the only poster to mention hate and anger, as far as I can tell.
Posted by: Sigmond | Mar 30, 2009 4:58:50 PM
Great decision, Mr. President.
Posted by: 33Greeper | Mar 30, 2009 4:47:02 PM
No more SUV lemons. Give us high mileage hybrids NOW!
Posted by: 33Greeper | Mar 30, 2009 4:45:13 PM
Oh My god! Now I can see why only 5 people out of every 100 can actually support themselves after they retire. Don't get the idea that most who make comments here are very educated, they are perhaps, just angry. I bet if many here would just take an English writing class or two, they might become more able to understand the world and also to better express themselves.
Anger and hate are elements of childhood and youth. I think that everyone here on this site who make comments might be older but, maybe not beyond this period (youth or childhood) in their lives.
If we look at ourselves, in truth, "please try and sere it" we may all find that your complaints are a tiny part of all of America and its problems. In other words, you caused it, I caused it and together, we caused it.
Any man who has the ability to go to the top in this country and attempt to fix anything, puts his life on the line without a flak jacket or weapon.
Anyone out there who hate that person should consider having to make all of these decisions that Obama, and before him, Bush have and had to make on a daily basis before they critize.
Posted by: James Felder | Mar 30, 2009 4:07:15 PM
China v US money market funds
Posted on Thursday, March 26th, 2009
By bsetser
This Nation was [Bankrupt] Long Before President Obama's Swearing in and he's Stuck with having to make this Economy Better, After...
[[8 Years Of George W.Bush]]
----------------
China’s purchases of US Treasuries in 2008 (Setser/ Pandey estimate): $245 billion
US money market funds purchases of US Treasuries in 2008, from the flow of funds: just under $400 billion
China’s purchases of US Agencies in 2008 (Setser/ Pandey estimate): $38 billion. That reflects $85 billion in purchases through July, and $47 billion in sales since then …
US money market fund purchases of US Agency bonds: $542 billion
China’s purchases of Treasuries and Agencies in 2008: $283 billion
US money market funds’ purchase of Treasuries and Agencies in 2008: $942b
I am waiting for a round of stories pondering whether money market funds will continue to buy Treasuries and Agencies at their 2008 pace!
US money market funds holdings of Treasuries and Agencies rose by close to 350% in 2008, as their combined Treasury / Agency portfolio rose from from $392b to $1334b. That pace of growth of growth won’t be sustained. The large rise came from a low base.
But money market funds did hold more Treasuries and Agencies ($1357b) at the end of 2008 than China ($1233b) did.
Posted by: O. | Mar 30, 2009 3:37:40 PM
Big business and highly paid executives had their chance at running this country. Their greed and complete lack of regard for the well-being of this country were their doom. Is Obama over-stepping? Maybe a bit. However, for all those who mistrust gov't involvement, I for one would prefer the gov't looking out for my interests than any large corporation who could give two hoots about me.
Posted by: Jim | Mar 30, 2009 3:34:21 PM
"Actually Bear, Obama has started a war.....just the media don't talk much about it. New leader of Pakistan is also the Vice President of Socialist International. Obama has been using our military to go after this guy's enemies so as Biden and Hilliary warned while the dems where still chosing who they wanted"
I love this amnesia experienced by right wingers!
We've been running operations into Pakistan and killing terrorists since at least Oct 2007.
Posted by: Ryan C | Mar 30, 2009 3:04:23 PM
OMG, we have an idiot for a leader. Seriously, this guy is even dumber than Carter..............he must go.
Posted by: PresGov | Mar 30, 2009 2:52:07 PM
Actually Bear, Obama has started a war.....just the media don't talk much about it. New leader of Pakistan is also the Vice President of Socialist International. Obama has been using our military to go after this guy's enemies so as Biden and Hilliary warned while the dems where still chosing who they wanted, Pakistans miscellaneous terrorists factions have united (instead of killing one another as before) and now are focused on taking us out. Obama is both corrupt and stupid---two very bad characteristics.
Posted by: PresGov | Mar 30, 2009 2:50:33 PM
European leaders have already told Obama that he is leading Americans down the road to hell"
One European leader said that, Mirek Topolanek.
And he said it 1 day after his center right coalition government was dissolved via a no confidence vote.
Posted by: Ryan C | Mar 30, 2009 2:39:24 PM
I agree that the big three have made terrible decisions, and the fact that union workers and management are at odds as they are at the big 3 is ridiculous and needs to change. The fact they didn't prepare for a day when americans wouldn't drive really big vehicles, never mind there non-existant mpg rating (or at least appearance there of).
However, on a broader scale, America needs to MAKE things. A state without industrialization is a slave to the rest of the world, If we only begin o consume and have raw materials, then we are no better than most 3rd world countries. We may not make cars in the future, but we dang well start creating more factories and less loft apartments.
Posted by: chris h. | Mar 30, 2009 2:38:54 PM
1) Only business can run business!
2) Government is evil!
3) Governement can't even run wars!
4) Only business can run wars!
5) Let the businessmen run the wars!
Posted by: Paul M. Sark | Mar 30, 2009 2:33:09 PM
It is high time that someone quit throwing good $ after bad $. If GM and Crysler cannot come up with a viable plan, NO MORE FEDERAL TAX $$$$$! Way to go, President Obama.
Posted by: William J. LePetomane | Mar 30, 2009 11:16:42 AM
European leaders have already told Obama that he is leading Americans down the road to hell. They also told him they really don't want his economic advice, period! And now American businesses are being controlled by him??? I have little confidence in his ability to direct anything. Wake up America!!!
Posted by: Linda | Mar 30, 2009 10:50:12 AM
When my grandfather, who flew in the Pacific theater during WW2 and hated the Japanese with a passion as a result, started buying Mazdas and Hondas, it was clear that the US automakers were finished.
Posted by: Robin | Mar 30, 2009 10:36:51 AM
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