In a harsh turn of events the US President, Barack Obama, has ordered General Motors and Chrysler to accelerate their turnaround efforts and brace for possible bankruptcy, saying bailout funds will be limited and poor decision-making will not be excused.
President Obama said neither company had gone far enough in their restructuring plans to warrant substantial further taxpayer investments, but he would give them a little more time to reach concessions with workers, investors and other stakeholders.
“We cannot, we must not, and we will not let our auto industry simply vanish,” Mr Obama said in remarks at the White House that were partly overshadowed by his decision to force out GM CEO Rick Wagoner. “It is a pillar of our economy that has held up the dreams of millions of our people.”
Mr Obama is promising only to fund Chrysler’s operations for the next 30 days, as it works to complete an alliance with Italian carmaker Fiat.
GM would get 60 days to rework its plans and its new CEO said a court-supervised restructuring in bankruptcy might be necessary.
GM had sought more than US$16 billion in new aid after getting US$13.4 billion in December, while Chrysler wanted US$5 billion on top of US$4 billion that it got at the end of 2008.
Jared Bernstein, a member of the US administration’s Autos Task Force, told Reuters Financial Television that a process that split off the “bad” assets of GM or Chrysler, and sent those through a court-supervised bankruptcy, was a possibility, but US officials had not yet decided to pursue that option.
“I don’t think we’re at that level of analysis until we see the kinds of changes and adjustments, concessions that are going to be made over the next 60 days,” Mr Bernstein said.
With US vehicle sales near 30-year lows, Mr Obama has also moved to reassure would-be car-buyers, saying the government would stand behind the warranties of GM and Chrysler.
He also offered his support for a tax credit incentive of up to $5000 to trade in older and less fuel-efficient vehicles.
The US car industry, including cash-strapped dealers and suppliers, has cut 400,000 jobs over the past year while losing billions of dollars.