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Business

Obama unveils rescue package for auto industry

Latest update : 2009-03-30

President Barack Obama announces his plan for the future of the ailing US auto industry. The White House has said it wants Chrysler to seal a deal with Fiat and GM to toughen up its restructuring plan.

AFP - The White House on Monday toughened its stand on new aid for ailing US automakers, charging that General Motors needs a "more aggressive" restructuring plan and Chrysler must seal a deal with Fiat.

President Barack Obama's auto task force said neither firm is "viable" at present but that both have a chance to avert bankruptcy if the new moves are taken.

GM chairman and chief executive Rick Wagoner was forced out at the request of Obama, as the task force unveiled grim prospects for the companies demanding an extra 21.6 billion dollars in loans.

The task force warned neither company had met the strict conditions laid down under an earlier 17.4 billion dollar government bailout agreed late last year.

Obama was to present his plan for the future of the industry at 11:00 am (1500 GMT) Monday with the two companies desperately seeking to steer out of the economic downturn that has sent global car sales plunging.

But the task force said that Chrysler, the third largest of the Detroit Big Three, had no viability as a standalone company and demanded it seek a partner.

The administration said it would provide Chrysler with "working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders."

If that succeeds, the government "will consider investing up to the additional six billion dollars billion requested by Chrysler" but would halt the aid if no partnership is reached.

GM meanwhile was granted an extra 60 days "to develop a more aggressive restructuring plan and a credible strategy," the task force said.

The fresh woes for the auto sector sent stock markets diving, with Tokyo closing 4.53 percent down and European bourses slumping in early trading.

GM and Chrysler had warned without extra funds they were teetering on the brink of bankruptcy and had been charged with coming up with viability plans to show the path to profitability.

Those plans required deeper job cuts, new agreements with unions to slash costs and acceptance by bondholders of a plan to cut the automakers' debt.

In the case of GM, the task force noted that while the company has made meaningful progress in its turnaround plan, "the progress has been far too slow" and it continued to lag behind its competitors.

"As a result, the president's designee has found that General Motors' plan is not viable as it is currently structured," the report said.

However, the experts expressed confidence that "there could be a viable business within GM" if the company and its stakeholders engage in a "substantially more aggressive" restructuring plan.

The task force's findings for Chrysler were grimmer, saying the firm's "fundamentally disadvantaged operating structure and a limited set of desirable products make standalone viability for the business highly challenging."

Its recovery plan was "not viable as currently structured."

However, the task force said if Chrysler could develop a partner that would bolster its product development and allow it to enter the small car market, it "has some prospects for long term viability."

The task force also said it was backing the warrantees of the two firms, a move aimed at shoring up confidence in consumers considering buying from the automakers.

GM meanwhile confirmed Wagoner's immediate resignation early Monday and said he would be replaced by Fritz Henderson, the company's current president and chief operating officer.

In a message posted on the company's website, Wagoner, 56, who took over at the helm of GM in 2000, said he had been requested to resign in talks on Friday in Washington with Obama administration officials.

Ford, the other member of Detroit's Big Three, has said it has enough cash to survive the downturn without government aid.

Obama warned Sunday the automakers needed to do more to earn a larger government handout.

"They're not there yet," Obama told CBS television. "We think we can have a successful US auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean, mean and competitive than it currently is."

And he added that to ride out the crisis there had to be "sacrifices from all parties involved, management, labor, shareholders, creditors, suppliers, dealers."
 

Date created : 2009-03-30

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