Obama: A ‘failure of leadership’ led to GM, Chrysler problems

Blaming “a failure of leadership from Washington to Detroit,” President Barack Obama delivered ultimatums today for General Motors Corp. and Chrysler LLC to enact deeper cuts or face collapse without government aid.

In a White House speech flanked by 12 of his economic advisers, Obama said today he was committed to the U.S. auto industry and its workers, comparing the industry’s decline to a natural disaster that deserved a federal response.

But he also made clear that the limits of federal aid to automakers was within sight, and that deeper cuts among workers, dealers, creditors and suppliers, along with a possible trip through bankruptcy court, would be needed for the automakers’ survival.

“Year after year, decade after decade, we have seen problems papered-over and tough choices kicked down the road, even as foreign competitors outpaced us,” Obama said. “Well, we have reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer.

“Now is the time to confront our problems head-on and do what’s necessary to solve them.”

In its first comments, GM said that it was committed to working with the administration, and raised the chance that it would need to file some type of bankruptcy after weeks of rebutting the idea. Shares of GM fell 20% on the New York Stock Exchange.

“Our strong preference is to complete this restructuring out of court,” GM said in a statement. “However, GM will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process.”

Rep. Thaddeus McCotter, R-Livonia, said he wanted more details of what the administration was asking from the automakers and Detroit.

The last viability plans included 50,000 people losing their jobs and sacrifices from retirees,” he said. “I want to see how many thousands of jobs are lost and what the retirees have to sacrifice under the administration plan.”

After finding that GM and Chrysler had failed to craft viable business plans under their $17.4 billion in federal loans, the president outlined different strategies for GM and Chrysler. GM gets 60 days to craft a new viability plan, one Obama said would have to go further than the one GM submitted in February which called for shedding 20,000 workers and closing 14 plants.

As part of its plan, the government demanded the resignation of GM Chairman and Chief Executive Rick Wagoner. Obama said the request was not a judgment on Wagoner, but a “ recognition that it will take a new vision and new direction to create the GM of the future.”

The government “has no interest or intention of running GM,” he said.

Obama also said Chrysler was no longer viable without a partner, adding that its deal with Fiat was the best option. The two sides have 30 days to craft a deal, which could be supported by up to $6 billion in federal loans that would have to be repaid before Fiat could take a majority stake in Chrysler.

The president said a short-term bankruptcy might be needed to win the debt reductions the government sees as necessary. Neither GM or Chrysler had made any progress in winning concessions from bondholders, and several analysts had noted that without the threat of bankruptcy the government had little leverage to force bondholders into any agreement.

Obama said if the companies filed, bankruptcy would not lead to liquidation, but would be used “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.”

He also said the administration would work to boost demand for vehicles, including considering some kind of “cash for clunkers” program, where owners of old models would get rebates to buy new, more efficient models.

“The path I am laying out today is our best chance to make sure the cars of the future are built where they’ve always been built – in Detroit and across the Midwest,” Obama said.