By DAVID ESPO AP Special Correspondent
WASHINGTON — General Motors is on a short leash, Chrysler even shorter.
President Barack Obama asserted unprecedented government control over the auto industry Monday and delivered an ultimatum to the two auto giants. He bluntly rejected their turnaround plans, demanded fresh concessions for long-term federal aid and raised the possibility of quick bankruptcy for either manufacturer.
Obama took the extraordinary step of announcing the government will back new car warranties issued by both GM and Chrysler, an attempt to reassure consumers their U.S.-made purchases will be protected even if the companies don’t survive.
“I am absolutely committed to working with Congress and the auto companies to meet one goal: The United States of America will lead the world in building the next generation of clean cars,” Obama said in his first extended remarks on the industry since taking office nearly 10 weeks ago. And yet, he added, “our auto industry is not moving in the right direction fast enough to succeed.”
Obama, flanked by several administration officials at the White House, announced a short-term infusion of cash for the firms, and said it could be the last for one or both.
Chrysler, judged by the administration as too small to survive, got 30 days’ worth of funds to complete a partnership with Fiat SpA, the Italian manufacturer, or some other automaker.
GM got assurances of 60 days’ worth of federal financing to try and revise its turnaround plan under new management with heavy government participation. That would involve concessions from its union workers and bondholders. The administration engineered the ouster of longtime CEO Rick Wagoner over the weekend, an indication of its deep involvement in an industry that once stood as a symbol of American capitalism.
Obama’s announcement underscored the extent to which automakers have been added to the list of large corporations now operating under a level of government control that seemed unthinkable less than a year ago. Since last fall, the Bush and Obama administrations, often acting in concert with the Federal Reserve, have engineered the takeover of housing titans Fannie Mae and Freddie Mac, seized a large stake in several banks and installed a new CEO at bailed-out insurance giant American International Group.
Other presidents have forced showdowns with major industries, with mixed results. Harry Truman’s decision to nationalize the steel industry on the eve of a strike in 1952 was ruled unconstitutional by the Supreme Court. But Ronald Reagan succeeded in busting the air traffic controllers’ union three decades later.
The latest addition to the list, the once-proud auto industry, has struggled with foreign competition for more than a generation, then was further battered by the recession and credit crisis gripping the economy. Obama said 400,000 industry jobs have been lost in the past year alone, many in Michigan.
Under Fritz Henderson, newly named as CEO, General Motors issued a statement saying it hopes to avoid bankruptcy, but will “take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process.”
Chrysler Chairman Bob Nardelli sought to assure customers, dealers, suppliers and employees that the automaker “will operate ’business as usual’ over the next 30 days” while working closely with the government and Fiat to secure the support of stakeholders.
Sergio Marchionne, CEO of Fiat, issued a statement calling the Obama administration’s involvement “tough but fair, and we believe we will arrive at a result that will establish a credible future for this crucial industrial sector and that assigns the right priority to the repayment of U.S. taxpayers’ funds.”
Fiat executives have talked to administration officials about a proposal to acquire a 35 percent stake in Chrysler in exchange for small car technology, transmissions and other items that Chrysler has valued at $8-$10 billion.
There was no immediate response from the United AutoWorkers Union. One worker, Don Thompson, 56, of Chesterfield Township in Michigan, said automakers were being punished because of public anger over the banking bailout. “They’re using us for the mistakes they’ve made in Washington,” he said.
Other workers alleged a double standard in how Washington dealt with Wagoner, as opposed to CEOs of bailed-out banks. “They’re using him as a fall guy,” said Frank Rowser, financial secretary for UAW Local 909.
When Wagoner leaves the automaker, he will take a financial package worth an estimated $23 million.
Ford Motor Co., the third member of the Big Three, has not requested federal bailout funds.
Obama said bankruptcy would be a way for either GM or Chrysler to “quickly clear away old debts that are weighing them down so they can get back on their feet,” and stressed that either firm would remain open.
“What I am not talking about is a process where a company is broken up, sold off and no longer exists. And what I am not talking about is having a company stuck in court for years, unable to get out,” he said.
Still, fears about the industry’s future sent stocks plummeting, with the Dow Jones industrial average losing about 254 points. GM plunged 92 cents, or 25.4 percent, to $2.70. Chrysler is not publicly traded.
Obama’s remarks were prompted by the expiration of a temporary bailout approved by the Bush administration last winter, with $17 billion in federal funds to help GM and Chrysler survive. Under its terms, the two automakers had until March 31 to submit restructuring plans as it searched for additional federal funds.
At the time, it appeared Bush had avoided an industry collapse on his watch yet had deferred the most difficult decisions for his successor.
By his comments, Obama bought himself a little more time, but made it clear it was fast running out. “Now is the time to confront our problems head-on and do what’s necessary to solve them,” he said.
The administration issued papers detailing the prospects for survival of both GM and Chrysler, credited them with making difficult choices, yet also stressing the difficulties that remain.
It said that while GM’s new car of the future, the Volt, “holds promise, it will likely be too expensive to be commercially successful in the short run.”
The government has said it’s willing to provide another $6 billion in financing for Chrysler if it is able to finalize an alliance with Italy’s Fiat Group SpA. But to get the money, Chrysler must rid its balance sheet of most of its debt, including any investment by its private owners.
That means Chrysler’s majority owner, Cerberus Capital Management LP, would have to give up the $1 billion interest it has in the automaker, according to a person briefed on the deal. The person asked not to be identified because terms are still being negotiated.
Cerberus would retain ownership in Chrysler’s financial arm, but it has pledged to the government the first $2 billion in profits to repay a federal cash infusion, the person said.
