Troubled automaker General Motors Corp. (GM), Monday said it would take whatever steps necessary to successfully restructure the company in a more accelerated and aggressive manner, which could include a court-supervised process. The automaker provided assurance that it would address issues and take tough decisions to improve the long-term viability of the company within the 60 days time specified by the U.S. government. The new proposal came after President Obama indicated that after a careful analysis of the proposals put forth by GM and Chrysler, it was determined that neither go far enough to warrant the substantial new funds that the two companies sought.
In a statement, GM CEO, Fritz Henderson said, Over the next 60 days, 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.
President Barack Obama set a deadline of 60 days for GM to fundamentally restructure itself, terming the success of the reinvention as vital for GM, the U.S. and global economies, and for the millions of employees, suppliers, dealers, retirees and others who depend on the company.
Chrysler was provided 30 days to reach a definitive agreement with Fiat, as restructuring plans offered by the two automakers failed to please the government. Obama also noted that an organized bankruptcy could be the best option for GM and Chrysler. The president minced no words when he said, 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.
In order to calm consumer fears and encourage vehicle purchases, Obama announced that the U.S. government would back warranties from GM and Chrysler.
GM has made a good faith effort to restructure. but the plan that they've put forward is, in its current form, not strong enough, Obama said. I'm absolutely confident that GM can rise again, providing that it undergoes a fundamental restructuring. The president added that the government has no interest in running GM.
Additionally, the IRS is launching a campaign to alert consumers of a new tax benefit - if you buy a car anytime this year you may be able to deduct the cost of any excise taxes.
Yesterday, GM CEO Rick Wagoner resigned from his positions with immediate effect, and was replaced by GM President and Chief Operating Officer, Fritz Henderson.
GM has already received $13.4 billion in loans from the government. The company almost ran out of capital towards the end of 2008 before it received emergency funding from the government. Upon receiving the initial loan from the U.S. Treasury, GM was under a mandate to streamline and reorganize by March 31. As it became apparent that GM would not be able to meet that deadline, Wagoner's days became numbered, especially since the company said it now requires another $16.6 billion to survive.
Indications were investors were unhappy with Wagoner after the company posted losses in each of the last four years and the pressure intensified after the government bailout. GM posted losses of $82 billion in the past four years. Meanwhile, critics pointed to Wagoner's unwillingness to invest in more fuel-efficient vehicle while continuing to mass produce gas-guzzling trucks and SUVs as one of the prime reasons for continued losses.
In a statement, GM said that during the next 60 days, it would 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 indicated its strong preference is to complete the restructuring out of court. GM also indicated that it would replace most of its board and increase reliance on producing more fuel-efficient vehicles, under findings of the administration's auto task force.
The other troubled automaker Chrysler was given 30 days to reach a definitive agreement with Fiat and get the approval of its stakeholders. The government said it would consider investing an additional $6 billion to help the deal.
The situation at Chrysler is more challenging, Obama noted, leading to the determination that Chrysler needs a partner in order to remain viable. The U.S. government will be supportive of a deal between Chrysler and Fiat, Obama said. He said that he was committed to doing all he could if a deal was struck, adding that Chrysler and Fiat have 30 days to overcome hurdles that have prevented the deal.
Both GM and Chrysler already received government loans of about $17.4 billion and have now sought an additional $22 billion to keep them going through the year. Ford was the only one of the Big Three U.S. automakers that did not seek any aid from the U.S. government's emergency loans.
Acknowledging the situation, Henderson concluded, 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.
GM closed Monday's regular trading session at $2.70, down 92 cents or 25.41% on a volume of 68.12 million shares. In the after-hours, the shares further lost 4 cents or 1.48%.
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