Obama troubled by auto woes

President Barack Obama yesterday took brutal command of the tottering US car industry, forcing out the chief of General Motors, ordering Chrysler to join forces with Italy's Fiat, and giving the companies a final 60 and 30 days respectively to come with up the changes needed, or face possible bankruptcy.

The action came on the eve of the President's departure for the G20 summit in London, aimed at charting a course out of the fierce global recession which has driven new car sales to 30-year lows, and delivered the coup de grace to the American car industry in its present form.

The moves constitute the greatest direct incursion by the federal government into corporate America since the Great Depression. That, combined with Mr Obama's uncompromisingly bleak assessment of the industry's chances of survival without truly radical therapy, sent stocks tumbling on Wall Street and around the world.

The restructuring plans submitted by GM and Chrysler in exchange for $17bn of short-term aid provided by the previous Bush administration "did not go far enough," Mr Obama said in a sombre appearance at the White House, in which he delivered his ultimatum to the two companies.

The blame lay not with the companies' workers or their families, who had seen 400,000 jobs disappear across the industry in the last 12 months alone, but with a long "failure of leadership" in both Detroit and Washington. For years, difficulties had been papered over and tough decisions repeatedly put off . But now "we've reached the end of that road," the president said, "we've got to confront the problems head-on."

Putting GM and Chrysler to rights meant that "unions and workers who have already made painful concessions will have to make even more," Mr Obama acknowledged, referring to the cuts in pensions, health care and other ‘legacy' payments which burden US car companies. It would also require their creditors to recognize that they cannot hold out for the prospect of endless government bailouts. If all else failed, and the companies did not come up with adequate plans, either or both could be made bankrupt.

GM now has 60 days to produce its plan, during which period the government will provide working capital to keep it afloat. But chief executive Rick Wagoner – who has presided over a drop in GM's share price from $70 to $4, and a 10 per cent drop in its US market share during his eight years im charge – is stepping down at once. His replacement is Fritz Henderson, currently the company's chief operating officer.

Mr Obama said that the federal government had "no interest and no intention" of running GM, once the largest company in the world. Even if some form of bankruptcy proved the only option, this would be a court-supervised restructuring. The American car industry would not be permitted to "simply vanish," the president said, underlining his "absolute confidence" that "GM can rise again."

Chrysler's plight is if anything even more desperate. After evaluating the recovery plan it submitted, the administration has concluded it cannot survive on its own. The company is being given working capital for the next 30 days. But if it has not finalised its proposed deal with Fiat by April 30 – whereby the Turin-based manufacturer would take a 35 per cent stake and provide Chrysler with fuel efficient small-car technology – it will get no more help. With an agreement, the government will consider extending a further $6bn loan.

Mr Obama also offered a few other carrots. He promised tax breaks for anyone buying new cars this year, and tax credits for trade-ins of older and less fuel efficient vehicles. To reassure potential buyers wary of cars built by companies that might soon be bankrupt, the government will "stand behind" GM and Chrysler warranties. This will ensure that guaranteed repairs on their cars are carried out, while they are restructuring. But he warned, it would take "an unprecedented effort" to shepherd the industry "through these perilous times."