President Obama Tells Automakers Their Viability Plans Are Lemons

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

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