The U.S. task force overseeing the restructuring of the auto industry on Monday said the plans submitted by General Motors Corp and Chrysler failed to show how they could be viable.
GM will receive 60 days of additional working capital to resolve the situation and Chrysler, about 80 percent controlled by private equity firm Cerberus Capital Management, will have 30 days to complete an alliance with Fiat SpA.
The task force said an expedited bankruptcy process to help GM and Chrysler eliminate unsustainable debt loads may be the best path if out-of-court restructurings with creditors cannot be negotiated.
The government also said it would launch a plan to guarantee the warrantee coverage of consumers who purchase new GM and Chrysler vehicles during the next phase of their restructuring.
Key findings by the autos task force follow:
The conclusion: GM's plan would not provide viability over the long term even if the economy improved.
The task force said GM could be made viable with more restructuring and said it would give the automaker 60 days of working capital to develop a more aggressive restructuring plan and credible strategy to complete it.
Leadership changes: GM Chief Executive Rick Wagoner will step aside. Kent Kresa will serve as interim chairman and current President and Chief Operating Officer Fritz Henderson, as CEO. GM also will aim to replace a majority of its board in coming months.
The plan will include an increased effort by the U.S. Treasury and outside advisers to assist with the company's restructuring effort, according to the task force.
More cuts required: GM must substantially reduce its debt and existing liabilities and will require substantially greater balance sheet concessions than for its existing loans.
The automaker must reach full competitiveness with the U.S. operations of foreign automakers rapidly and make a more aggressive restructuring of manufacturing, headcount, brand, nameplate and retail sales networks.
The conclusion: Chrysler cannot be viable over the long term as a stand-alone company and its plan contained a number of unrealistic or overly optimistic assumptions.
The new path: An alliance with Fiat could provide a path to viability, but the original proposal was unacceptable in many ways, including the potential for Fiat to hold a majority of the company before U.S. taxpayers were paid back.
Chrysler will receive 30 days of working capital to complete a definitive agreement with Fiat and secure the support of necessary stakeholders. The government would consider an additional $6 billion of loans to Chrysler if the partnership with Fiat is completed.
New requirements for U.S. funding: Chrysler must extinguish the vast majority of its secured debt as well as all of its unsecured debt and equity, other than trade creditors providing normal trade terms.
Chrysler, Fiat and the United Auto Workers union must reach agreements that provide greater concessions than outlined for the existing loans.
Chrysler and Fiat must provide a more detailed operating plan and the alliance must not require more than the $6 billion of additional loans that could be provided.
(Reporting by David Bailey; Editing by Lincoln Feast)