In a speech at the White House, Obama blamed the industry's woes on "a failure of leadership -- from Washington to Detroit," and he said problems have been papered over and tough decisions avoided for decades as foreign competitors outpaced U.S. car companies.
"We, as a nation, cannot afford to shirk responsibility any longer," he said. "Now is the time to confront our problems head-on and do what's necessary to solve them."
He added, however, "We cannot, and must not, and we will not let our auto industry simply vanish. . . . It's a pillar of our economy that has held up the dreams of millions of our people. And we cannot continue to excuse poor decisions. We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars. These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."
Obama also said both GM and Chrysler might still be able to win additional federal aid but under stricter terms.
Making official what reporters were told over the weekend, the president said GM's longtime chairman and chief executive, G. Richard Wagoner Jr., is "stepping aside." Wagoner met with administration officials on Friday and agreed to the move.
"In the course of that meeting, they requested that I 'step aside' as CEO of GM, and so I have," Wagoner said in a statement released today. He praised the executives succeeding him and hailed GM employees worldwide. "GM is a great company with a storied history," he said. "Ignore the doubters because I know it is also a company with a great future."
U.S. stock markets plunged on the news. The Dow Jones industrial average was down more than 300 points, or about 4 percent, in mid-afternoon trading, and GM shares were off more than 21 percent. Shares of Ford, which did not receive federal bailout funds, were down about 2.8 percent. Chrysler is privately owned by Cerberus Capital and does not trade publicly.
Obama's announcement came after the administration effectively rejected as untenable the business plans that GM and Chrysler had submitted to restructure their companies, saying that neither had fulfilled the terms of the federal loans the companies received in December.
Chrysler, which the administration believes cannot survive as a stand-alone company, must reach an agreement to partner with the Italian automaker Fiat in the next 30 days to become eligible for as much as $6 billion in additional federal loans.
GM, which has shed thousands of workers since the downturn began, must devise a leaner business plan that probably will cut the company workforce and product lines even more than officials had contemplated. It has 60 days to come up with a new approach.
Obama said his administration has determined that neither company's restructuring plan "goes far enough to warrant the substantial new investments that these companies are requesting." While the automakers have made "meaningful progress in recent years," Obama said, the industry "is not moving in the right direction fast enough to succeed in a very tough environment."
Therefore, he said, he is offering GM and Chrysler "a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars."
He expressed confidence that "this restructuring, as painful as it will be in the short-term, will mark not an end, but a new beginning for a great American industry."
He said he was "absolutely confident that GM can rise again, providing that it undergoes a fundamental restructuring." He stressed that the U.S. government "has no intention of running GM."
If GM is unable to restructure and Chrysler cannot strike a deal with Fiat, they might need to use the bankruptcy code "as a mechanism to help them restructure quickly and emerge stronger," Obama said. He said that could enable the companies to "quickly clear away old debts that are weighing them down," even as their workers remain on the job.
"What I am not talking about is a process where a company is simply broken up, sold off and no longer exists," he said. "And what I am not talking about is having a company stuck in court for years, unable to get out."
To reassure car buyers, he said, the U.S. government starting today "will stand behind" GM and Chrysler warranties. That means that a new car warranty for a GM or Chrysler vehicle "will be safer than it's ever been," he said.
Reaction on Capitol Hill was mixed. Senate Majority Leader Harry M. Reid (D-Nev.) commended the administration for "showing a firm resolve in its negotiations with GM and Chrysler," adding, "We will not give these companies a blank check." But the Senate Republican leader, Mitch McConnell (Ky.), criticized both Obama and the previous administration of President George W. Bush for their handling of the auto industry.
"How many times do the taxpayers have to provide bailout money on the promise of reform?" McConnell asked in a statement. "We are now told these two companies are getting their last check from the taxpayers, and that if they don't finally come up with truly viable plans then they'll be forced into bankruptcy. Unfortunately, we've heard this before, from both this and the previous administrations."
The Obama administration "says these reforms must now be taken seriously or the taxpayer bailouts will end," the minority leader said. "While that should have happened tens of billions of dollars ago, we agree that it's time to get serious."
Sen. George V. Voinovich (R-Ohio), a strong supporter of the auto industry, said: "Although I am extremely disappointed that the administration believes GM and Chrysler did not go far enough in their viability plans, I give them credit for insisting that American auto companies receiving taxpayer dollars can stand on their own two feet eventually. However, this is long overdue."
The White House's insistence that Wagoner step down represented an extraordinary intervention of the federal government into the management of a private company. A senior administration official said Wagoner's resignation was required because the company needs a "clean sheet."
Before the federal government extends more financial aid to the U.S. automakers, the industry must offer a plan that makes it "much more lean, mean and competitive than it currently is," Obama said yesterday on CBS's "Face the Nation."
Overall, the task force has concluded that saving the nation's automakers will require more from the companies, their workers and their creditors. The new requirements will be tougher than those in the first federal aid package offered by the Bush administration, officials said.
In recognition of the damage that the declining U.S. auto industry is having on many of the nation's communities, the administration is creating a new initiative to revive them. Obama said today he is designating Edward Montgomery, a dean at the University of Maryland and a former deputy labor secretary, as "director of recovery for auto communities and workers," a new administration post.
Exactly how much more money the government will lend to the automakers is unknown.
The government is willing to pump more working capital into Chrysler over the 30 days, during which it is supposed to reach an agreement with Fiat. The government will lend another $6 billion to Chrysler if that agreement is reached. Under the terms of the ongoing negotiations between the two companies, Fiat would take a minority stake in Chrysler that is less than 35 percent, but which could grow to as much as 49 percent. The administration is not calling for Chrysler chief executive Robert L. Nardelli to resign, in part because he is negotiating the Fiat deal.
The amount that GM may borrow from the government will depend upon the government's ongoing review of the company, administration officials said.
Wagoner's resignation does not mean that he will leave the company immediately. He will continue to draw his $1 annual salary, because if he leaves the company he is entitled to a multimillion-dollar pension that the government does not want to pay, a source familiar with the matter said.
In a statement, GM announced today that Kent Kresa, a GM board member since 2003 and a former chairman of Northrop Grumman Corp., "has been named interim non-executive chairman of the board of directors." It said GM's current president and chief operating officer, Fritz Henderson, 50, will serve as chief executive.
The statement said only that Wagoner "is stepping down as chairman and CEO effective immediately."
"During the next 60 days, GM will address the tough issues to improve the long-term viability of the company, including the restructuring of the financial obligations to the bond holders, unions and other stakeholders," the company said. "Our strong preference is to complete this restructuring out of court. However, GM will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process."
Henderson pledged that over the 60-day period, "we will work around the clock, with all parties, to meet the aggressive requirements that have been set by the Task Force, and to make the fundamental and lasting changes necessary to reinvent GM for the long-term." He expressed confidence that "a stronger, healthier GM" will emerge despite "significant challenges ahead of us, and a very tight timeline."
Henderson said, "The administration has made it clear that it expects GM to expand and accelerate its restructuring efforts. I want the American people to know that we understand and accept this guidance. The road is tough, but the ultimate goal a leaner, stronger, viable GM is one we share."
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