WASHINGTON — President Barack Obama today will reject requests for almost $22 billion in new taxpayer bailout money for General Motors Corp. and Chrysler, saying the automakers have failed to take steps to ensure their viability.
The government reportedly demanded the resignation of GM chief Rick Wagoner and said the company needed to be widely restructured if it had any hope of survival. It said it would provide the company with 60 days’ operating capital to give it time to undertake reforms.
The government will grant Chrysler 30 days’ operating funds but said it must merge with another automaker in order to remain viable. Talks with Italian carmaker Fiat are underway.
The administration also announced a warranty-guarantee plan that administration officials hope will give consumers enough confidence that they will continue to buy the companies’ vehicles.
GM and Chrysler already have received $17.4 billion in government rescue money. The two companies faced a Tuesday deadline for the government to approve plans they had submitted weeks ago in hopes of persuading the Obama administration they could remain in business and deserved additional money.
But the decision from Obama was no and was accompanied by unusually detailed assessments of the two companies’ business plans and prospects.
The administration, however, did not demand repayment of the earlier loans. It also did not completely slam the door on the additional $21.6 billion the carmakers sought but sent the two back to the drawing board.
A senior administration official, briefing reporters late Sunday night on the condition of anonymity in order to speak freely, said Obama will call for more sacrifice from carmakers, their investors and automotive unions.
The official said there were encouraging signs that the Chrysler merger with Fiat will happen soon. The administration wants this deal to happen, but it has tried to avoid too big a stake by Fiat for fear taxpayers would be funding a foreign takeover.
Fiat will commit to produce fuel-efficient cars and engines in the U.S. and will be limited to a 49 percent stake until all taxpayer loans have been repaid. There are no expected leadership changes at Chrysler, given the ongoing merger talks.
Another senior administration official, also demanding anonymity, denied that the administration required Wagoner’s ouster, but officials acknowledged they wanted a fresh start at GM and that Wagoner agreed to step aside.
GM president and chief operating officer Fritz Henderson will take over as CEO, the company said in a statement released just after midnight. Kent Kresa, a former chairman and CEO of Northrop Grumman Corp., was named interim chairman.
The government’s assessment of Chrysler’s prospects was particularly damning. It noted that none of Chrysler’s current models was recommended in a recent article by Consumer Reports and that every one of its brands ranked in the lowest quartile for quality in an assessment by J.D. Power.
It said the company is too dependent on trucks and sport utility vehicles and had only a 3 percent share of the small-car market, even though that segment makes up 21 percent of car sales overall.
The government also said it was unlikely Chrysler would be able to meet new government standards for fuel consumption.
GM too was criticized for being dependent on the sale of trucks and SUVs for its revenue.
The quality of its products also was a concern. While GM has worked hard to improve quality, “lingering consumer perception is that GM makes lower-quality cars . . . which in turn leads to greater discounting, which harms GM’s price realizations and depresses profitability.”
The government also said GM had not done enough to rid itself of underperforming dealers and that its large number of vehicles were a distraction to its management.
The government offered a bleak assessment of the prospects for GM’s much-heralded Volt electric car, noting GM was a full generation behind Toyota in “green powertrain development.”
“While the Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable,” the government assessment said.
Given all that, the government assessment found GM’s proposed plan was too optimistic in foreseeing “only a very moderate decline” in market share. GM’s market share in the U.S. stood at 45 percent in 1980, dropping to 36 percent by 1990 and 29 percent in 2000. Today, GM’s share of the U.S. auto market is about 22 percent.
Richard “Rick” Wagoner Jr.
Age: 56.
Born: Feb. 9, 1953, in Wilmington, Del., and raised in Richmond, Va.
Education: Bachelor’s degree in economics, Duke University, 1975; master’s degree in business administration, Harvard University, 1977.
Career: General Motors Corp. chairman and chief executive, May 2003 to present; GM president and CEO, 2000-03; GM president and chief operating officer, 1998-2000; executive vice president and president of GM North America, 1994-98; GM executive vice president and chief financial officer, 1992-94; president and managing director of GM Brazil, 1991-92; vice president in charge of finance for GM Europe, 1989-90; worked for GM in Brazil and Canada, 1981-89; joined GM as an analyst in the treasurer’s office, 1977.
