President Barack Obama announced Monday that his administration has determined that the restructuring plans offered by General Motors Corp. (GM) and Chrysler, LLC do not go far enough to warrant additional government assistance. Rater, the embattled automakers will be allowed a limited period of time to fundamentally restructure, Obama said.
Flanked by Treasury Secretary Tim Geithner, economic advisor Larry Summers, and Transportation Secretary Ray LaHood, Obama also noted that an organized bankruptcy could be the best option for GM and Chrysler.
This restructuring, as painful as it will be in the short term, will mark not an end but a new beginning for the American auto industry, Obama said.
He commented on the forced resignation of GM CEO Rick Wagoner, noting that it's not a condemnation of Wagoner's work, but rather a recognition of the need for a fresh start at the automaker.
GM has made a good faith effort to restructure.but the plan that they have put forward in its current form is not strong enough, he said. I am 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 and will instead give them 60 days to restructure. 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 announced that he is committed to doing all I can to see if a deal can be struck, adding that Chrysler and Fiat have 30 days to overcome hurdles that have prevented the deal.
If they are able to reach an agreement, Obama said that his administration would lend up to $6 billion in order to see the plan through.
However, both GM and Chrysler need a fresh start to implement the restructuring plan, Obama said.
That may mean using our bankruptcy code as a mechanism, he explained. Using our existing legal structure as a tool that, with the backing of the U.S. government. we can use even as workers are staying on the job, building cars that are being sold.
What I'm not talking about is the process where a company.is stuck in court for years unable to get out, he added.
In order to calm consumer fears and encourage vehicle purchase, Obama announced that the U.S. government would back warranties from GM and Chrysler.
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.
Likening the struggle in the auto industry to natural disasters, Obama encouraged the country to respond and help the auto towns like it would a town struck by a hurricane.
The storm that has hit our auto towns - the damage is clear, and we must likewise respond, he said.
The failure of the automakers is not a reflection of the workers, Obama said. Instead, he pointed out that it is a failure of leadership - from Washington to Detroit - that led our auto companies to this point.
However, while noting that the nation cannot afford to shirk responsibility any longer, Obama added that the nation cannot and must not and will not let our auto industry simply vanish.
The auto industry is a pillar of our economy that has held up the dreams of millions of our people, the president said.
However, taxpayers cannot continue to support poor decisions, he said. GM and Chrysler along with the rest of the American auto industry must function on their own, not as wards of the state, he said.
What we're asking for is difficult, the president continued. It will require hard choices by companies.extraordinarily painful concessions to do more. It will require efforts from a whole host of other stakeholders, including dealers and suppliers.
Only then can we ask American taxpayers to once again invest in the American auto industry, he said.
However, the restructuring will allow the U.S. to take the lead in the creation and production of clean cars, Obama said. He announced plans to work with Congress to create an incentive program encouraging Americans to turn in their old, inefficient cars for new, greener vehicles.
Although the American auto industry has made significant progress in clean cars, the change is not moving in the right direction fast enough to succeed in a very tough environment, Obama said.
Senate Majority Leader Harry Reid, D-Nev., issued a statement immediately following the announcement, praising the administration's decision to restructure the auto industry.
The Administration's decision to send GM and Chrysler back to the drawing board was driven by three critical and commendable goals: protecting taxpayers' investment, moving America more quickly toward energy independence, and ensuring these two companies and the American auto industry as a whole can survive and as many workers as possible can keep their jobs, Reid said.
Reid added, Restructuring the auto industry will inevitably entail difficult decisions for the Administration and the companies in question - and indeed some that might be painful in the short term - but I remain confident that these goals are not only essential to pursue, but that they will be achieved.
GM CEO Fritz Henderson, Wagoner's replacement, pledged to make the fundamental and lasting changes necessary to reinvent GM for the long-term.
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, Henderson said in a statement.
We have significant challenges ahead of us, and a very tight timeline, he added. However, Henderson said, The road is tough, but the ultimate goal - a leaner, stronger, viable GM - is one we share.
In Detroit itself, the reaction to the announcement ranged from upset to sympathetic.
It's about time, said unemployed carpenter Gary Luff. The people running that show haven't got a clue.
Others were more sympathetic to Wagoner, pointing out that turning around a behemoth like General Motors during his tenure was a near-impossible task.
The unions helped build that company, but they've also done more to destroy it than Toyota has, insisted Seth Kirshinn, a financial products salesman.
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