Obama Takes Hardline on GM and Chrysler

GM and Chrysler - Crunch Time

In a speech today, President Obama laid out the government’s ‘tough love’ approach in future dealings with automakers, General Motors and Chrysler.

The Associated Press:

“President Barack Obama refused further long-term federal bailouts for General Motors and Chrysler, saying more concessions were needed from unions, creditors and others before they could be approved. He raised the possibility Monday of controlled bankruptcy for one or both of the beleaguered auto giants.

At the same time, eager to reassure consumers, Obama announced the federal government would immediately begin backing the warranties that new car buyers receive — a step designed to signal that it is safe to purchase U.S.-made autos and trucks despite the distress of the industry.”

The highlights:

• Late last year, GM has received 13.4 billion in government loan from the Bush administration.  Chrysler received $4 billion.
• In February, GM asked for another $16.6 billion while Chrysler asked for $5 billion more.
• The automakers are facing the worst auto sales in 27 years.
• GM owes a combined $48 billion to its bondholders and retiree health care trust.
• Chrysler owes approximately $18 billion to it’s bondholders and health care trust.
• The government will offer GM “adequate working capital” over the next 60 days.  This is the time period in which GM is expected to offer a restructuring plan.
• Obama has given Chrysler 30 days to finalize a merger with Fiat SPA.  If successful, the president stated that the government would consider lending a maximum of $6 billion to Chrysler.
• In a move to bolster consumer confidence in GM and Chrysler, the government will stand behind warranties issued by the companies.

It is clear that the government is much more concerned with the survival of GM than they are of Chrysler.   The demise of GM, the world’s 2nd largest carmaker, would have a much greater impact on the economy than would that of Chrysler.

The bottom line in the President’s message is that both automakers must restructure immediately if there is any hope of either receiving further bailout money.

Breaking News!

Chrysler just announced that a deal has been reached with Fiat.

“We are pleased that Chrysler, Fiat and Cerberus have reached agreement on a global alliance, supported by the U.S. Treasury.”

The President’s speech on the auto industry:

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