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US toughens conditions for GM, Chrysler aid
2009-03-30
WASHINGTON (AFP) - US President Barack Obama hardened his position Monday on further aid for ailing Detroit automakers, giving General Motors and Chrysler new deadlines to come up with better viability plans. Obama's auto task force said neither firm is viable at present, with GM in need of a "more aggressive" restructuring plan and Chrysler needing to seal a global alliance with Italian-based Fiat. Obama said recovery for the sector will require "unprecedented" efforts, and that a bankruptcy court-supervised restructuring with government support is an option for the firms. "We cannot, we must not, and we will not let our auto industry simply vanish," Obama said as his task force unveiled its findings. "It is a pillar of our economy that has held up the dreams of millions of our people. But we also cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars." Obama said that if GM and Chrysler cannot come up with viable plans, they may need to use the bankruptcy process "as a mechanism to help them restructure quickly and emerge stronger." This type of bankruptcy reorganization would mean that the firms "with the backing of the US government" can "quickly clear away old debts that are weighing them down." To help the automakers survive, Obama said, "it will take an unprecedented effort on all our parts -- from the halls of Congress to the boardroom, from the union hall to the factory floor." GM chairman and chief executive Rick Wagoner was forced out at the request of Obama, as the task force unveiled grim prospects for the firms demanding an extra 21.6 billion dollars in government loans. The task force warned neither firm had met the strict conditions laid down under an earlier 17.4 billion dollar government bailout agreed late last year. The plans submitted by GM and Chrysler "did not establish a credible path to viability," the report said. They will be given new deadlines and "an adequate amount of working capital to establish a new strategy for long-term economic viability." GM was granted 60 days "to develop a more aggressive restructuring plan and a credible strategy," the report said. The news prompted a huge stock market selloff, as GM shares slid 25 percent. Ford, which is not seeking government aid, dropped 2.8 percent. GM said it maintained a "strong preference" to stay out of bankruptcy court by saying it "will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process." The task force said that privately held Chrysler, the smallest of the Detroit Big Three, had no viability as a stand alone firm. The administration said it would provide Chrysler with "working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders." If that succeeds, the government "will consider investing up to the additional six billion dollars requested by Chrysler." Chrysler chairman Bob Nardelli said its proposed global alliance with Italian-based Fiat was "supported by the US Treasury" and the deal "enhances its business model that expands its global competitiveness." GM and Chrysler have been seeking the extra cash to weather the economic crisis and avert bankruptcy that executives say could have harsh repercussions. The government bailout begun last year required deeper job cuts, new agreements with unions to slash costs and acceptance by bondholders of a plan to cut the automakers' debt. A statement by a GM bondholders committee said it is "willing to reduce GM's future debt burden by exchanging a substantial part of their debt for equity, but that exchange must occur in support of a business plan that has a chance to succeed." In another move, the Treasury said it was backing the warranties of the two firms, a move aimed at shoring up confidence in consumers considering buying from the automakers. Obama also backed a plan to offer tax incentives to consumers trading in old cars for newer fuel-efficient models to boost the auto industry and help the environment. Edmunds.com CEO Jeremy Anwyl said such a plan could improve sales: "Hopefully it must be implemented quickly, since an increase in car sales will boost consumer confidence and jump start the economy at large."
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