American Auto Industry | 03/30/2009 12:55 pm
Obama Administration Takes Tough Tone on GM, Chrysler
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Barack Obama refuses to sit by and let the American auto industry squander its bailouts.
As Chrysler and General Motors struggle to find their footing amid the economic crisis, the president today announced new plans to save the ailing companies. And those plans call for a complete overhaul. Appearing at the White House, Mr. Obama insisted that if the companies want more taxpayer money, they’re going to have to make some serious changes.
For example, Chrysler must find a way to strike a deal with Italian company Fiat because, according to administration economists, the legendary automaker cannot survive on its own. GM chairman Rick Wagoner was fired this weekend after the administration put a squeeze on his company. That company seems more viable because they’ve made progress in terms of more energy-efficient cars, say sources, but must still make broader changes if it wants to remain on the government payroll. Both companies received $17.4 billion in January and have asked for an additional $22 billion.
Both companies, said Mr. Obama, could be subject to government-controlled bankruptcy plans:
I know that when people even hear the word ‘bankruptcy’ it can be a bit unsettling, so let me explain what I mean. What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold.
Obama also said that he and his team think their moves are necessary, for the nation cannot "let our auto industry simply vanish." Some wonder, however, whether Obama’s plan could simply help drive the industry off a cliff. Of course, only time will tell.
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34 Reader Comments (so far…) Sign In or Register to comment
I agree they should have NEVER been bailed out in the first place.
What I want to know is if Obama thinks he can demand that the CEO resign taking over the role of the Board of Directors why has he not asked tof the head AEW do the same?
Ed Morrissey points out that Obama has also cooked up a new government-backed warranty program:
Seems Obams now thinks he is King????
" Obama didn’t ask Congress about ousting Wagoner By Ian Swanson Posted: 03/30/09 01:53 PM [ET] President Obama didn’t want any advice from Congress on the decision to ask GM CEO Rick Wagoner to resign, according to Carl Levin (D), Michigan’s senior senator.
“He didn’t ask us about it, he informed us,” Levin told reporters in a conference call Monday afternoon. “The president said he’d already decided.”
Levin said he and three other lawmakers were informed of the decision in a phone call Obama made from the Oval Office. Obama told the members of Congress that Wagoner needed to resign so that the administration could show the public it was making an effort at a fresh start with helping the auto industry, according to Levin.
Levin repeatedly described the decision as “sad,” and noted that Wagoner had given a lifetime of service to GM. He praised Wagner’s willingness to voluntarily “retire” from his post, and did not say whether he disagreed with Obama’s decision.
Obama formally announced Monday morning that he was rejecting restructuring plans submitted by GM and Chrysler because they would not make the two automakers viable. He also made it clear that Wagoner was asked to resign as a condition for GM getting more aid.
Levin did not directly criticize Obama’s decision, but did say there is a “double standard” in the treatment of U.S. automakers and the financial industry, which has received tens of billions more in aid from taxpayers. “It’s something we’ve got to fight and overcome,” he said of Michigan lawmakers.
Obama suggested both companies might need to into a controlled bankruptcy to restructure, a suggestion Levin said could hurt Chrysler and GM by lowering consumer confidence.
General Motors Corp can thank US taxpayers for $13.4 billion in loans that have kept it running. The carmaker can also thank China’s government, which is kicking in subsidies of as much as $1,170 to help it sell vans.
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The automaker’s China minivan venture boosted sales 32 percent in the first two months after a cut in retail taxes on small vehicles. The government is now giving out 5 billion yuan in subsidies to spur auto sales in rural areas.GM keeps growing in China
GM’s future hanging by a thread
GM doubled its 2009 forecast for China’s market growth as the tax cuts and subsidies revived demand. By contrast, the US carmaker’s domestic sales have slid 51 percent, forcing it to seek as much as $16.6 billion more in government aid.
Vehicle sales in China may rise between 5 percent and 10 percent this year, according to GM, the largest overseas automaker in the country. It had previously forecast sales growth of less than 3 percent. The automaker expects to outperform the wider market by as much as 3 percentage points, helped by sales at SAIC-GM-Wuling Automobile Co, the largest minivan-maker in China. The venture accounts for at least half of GM’s China sales.
"There’s a very direct link between the government’s efforts to boost rural consumption and Wuling’s rising sales," said Nick Reilly, GM’s Asia-Pacific president. "The government has also come out with its stimulus package and the stock market is up and that’s giving people confidence to spend again."
SAIC-GM-Wuling sales rose to 72,947 vehicles in February, about 50 percent more than a year earlier, according to the China Association of Automobile Manufacturers. In January, the government halved retail taxes on vehicles with engines of 1.6 liters or less. The tax break, covering more than half the market, helped end three months of falling nationwide sales.
Chinese farmers and other rural residents who buy a new minivan or light truck can also get a subsidy equal to 10 percent of the purchase price, up to a maximum of 5,000 yuan.
Rural drivers who replace an existing light truck with a new truck or minivan can get a further 3,000 yuan.
This help allowed Wu Tao, 25, to replace the electric bike he used to ferry goods to his store in Hebei province with a SAIC-GM-Wuling Sunshine minivan - the first vehicle his family has ever owned. "Because the government is giving us money, I was able to get it now instead of waiting until I had saved up more," Wu said.
Nationwide minivan sales may rise as much as 30 percent this year, according to Shenyin & Wanguo Securities Co.
While the subsidies have boosted sales, they may do little for automakers’ profits. The impact for GM is diluted by the fact that it only holds 34 percent of SAIC-GM-Wuling. SAIC Motor owns 50.1 percent and Liuzhou Wuling Motors Co owns the remainder. More generally, farmers are mainly buying cheap, low-margin models - prices run as low as 30,000 yuan.
"Farmers are sensitive to differences in prices of as little as 100 yuan," said Zuo Yanan, chairman of Anhui Jianghuai Automobile Group Co.
It seems like a responsible move, to protect the people who have already bought new cars that are under warranty by having the government cover it. The leadership at GM, and the UAW, have for many, many years had the idea that the American people would always buy cars, no matter what they cost, and that GM’s pockets were so deep they had no bottom. With that kind of mentality, it is not difficult for me to find it credible and believable that new leadership is needed just to get a different mindset, capable of grasping the limits and making the drastic changes needed if GM is going to survive. If it doesn’t, then maybe what will emerge is 3 or 4 new, smaller manufacturers and maybe we will see an improvement in the quality, price, and selections we are offered. As was pointed out in the article, only time will tell.
It will be interesting to see haow this all pans out. Now GM is no longer and American Car company if the money we invested in them is from China.
I also heard another comment today that it may be more difficult for the new GM to be profitable if they are forced to manufacturer green vehicles..as they less profitable than the gasoline variety!
Never has a president ever fired a CEO of any company!!! Now we have someone in power who is going to do just this to any company who is receiving bail out money!!! The power is not going to stop just with hiring and firing, the govt. will now tell what kind of salaries will be paid, what kind of product will be made and what can be charged for it…it doesn’t stop….the power and control is going to be now exercised by our govt…..is everyone ready for this??? Is this what we want??? Sounds like China more and more everyday!!! Hang on to your hat!!