Head of GM ousted in last-try reforms
By Ken Bensinger and Jim Puzzanghera
Los Angeles Times
By Ken Bensinger and Jim Puzzanghera
The Obama administration will take dramatic steps today to reform and reshape General Motors Corp. and Chrysler — and began yesterday by forcing out the head of GM.
Reaching deeper than ever into corporate affairs, the administration asked Rick Wagoner to quit as GM's chairman and chief executive, senior administration aides said. The aim was to give the company a chance to go forward with "a clean sheet of paper," one aide said.
Wagoner stepped down effective immediately, the company said in a statement early today.
With a deadline looming tomorrow to accept the companies' restructuring plans or call in the government's previous loans, the Obama administration will do neither. Instead, officials will give GM and Chrysler more time to make the changes necessary for long-term viability.
Rejecting the automakers' requests for $22 billion in new funding, the administration will extend limited amounts of cash to GM and Chrysler to give them more time to restructure — 60 days for GM to show it can be viable and 30 days for Chrysler to work out a deal to merge with Italian automaker Fiat.
And if they can't show progress, Chrysler might be left to fail and GM might be dragged into bankruptcy, said the officials, who requested anonymity so they could speak frankly.
To date, the companies and their financing arms have received $24.8 billion in government loans. Administration officials declined to specify how much more money the administration will be prepared to lend the automakers to finish their restructuring plans.
Appearing on CBS' "Face the Nation," President Obama said yesterday the nation could have a "successful U.S. 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," he said, noting that that would "mean a set of sacrifices from all parties involved."
Obama will announce his plan today, calling for further sacrifices from stakeholders and even threatening to force bankruptcy or cut off aid entirely should significant progress not be made by the companies' new deadlines.
JOB CUTS EXPECTED
In anticipation of more Rust Belt job losses, the president will name a director for auto communities, an executive branch czar charged with providing support to laid-off auto workers and their families. And for consumers, the government will guarantee warranties on GM and Chrysler automobiles purchased in the next two months.
"At the end of the day, if the consumer doesn't start buying these vehicles, nothing else matters," said Rebecca Lindland, auto analyst with I.H.S. Global Insight.
Since December, when then-President Bush agreed to lend the companies a combined $17.4 billion, plus $7.4 billion to their lending arms, GMAC and Chrysler Financial, the sagging economy has taken a considerably larger bite out of auto sales.
Ford Motor Co. has not requested any federal aid.
In the first two months of 2009, U.S. sales for GM and Chrysler have fallen 45 percent. That decline led members of a task force reporting to the president to conclude that restructuring plans submitted by the automakers last month were unsuitable.
Moreover, neither GM nor Chrysler was able to satisfy terms of the existing bailout loans, including orders to reduce unsecured company debt by two-thirds and cash obligations to retiree healthcare by half.
"We have unfortunately concluded that neither plan represents viability and does not warrant the substantial additional investments they requested," an administration official said.
But because the president "decided this was an industry of crucial importance to the country," the administration is providing the two Detroit giants with an additional, if short, lifeline.
MORE CHANGE ASKED
In requesting that GM's top executive step down, the task force suggested that it was demanding more change at the company than Wagoner was able to deliver. Wagoner has spent his entire career at GM, beginning in 1977, and reached the chief executive position in 2000.
In his eight years at the helm, GM has lost $68 billion while the company's stock has declined by 95 percent.
GM board member Kent Kresa will act as interim chairman. Fritz Henderson, current president and chief operating officer, will fill the chief executive role.
Chrysler, meanwhile, will be given 30 days to come up with a workable plan to merge with Fiat, with which it has been negotiating a possible deal since January. As part of any arrangement, Fiat, which has not sold cars in this country for two decades, would be expected to commit to build fuel-efficient vehicles in the U.S.
In the event of a workable plan, the government would consider lending Chrysler up to $6 billion to help pay for the merger.
"But if they can't come to a satisfactory agreement and no other viable partnership arises, we will no longer be able to justify investing additional tax dollars into Chrysler," a senior administration official said.
Because of the continuing uncertainty surrounding the future of both automakers, the administration plans a warranty commitment program designed to assure nervous consumers. Both automakers will be asked to contribute to the program, which will guarantee the warranties of new GM and Chrysler cars.
Times writer Peter Nicholas and The Associated Press contributed to this report.