Obama Team Gives GM, Chrysler Viability Plans Failing Grades; Re-Do Is Ordered
By Michelle Krebs March 29, 2009By Michelle Krebs
DETROIT -- President Barack Obama, scheduled to take to the airwaves later this morning to discuss the plight of General Motors and Chrysler, gave the two automakers failing grades on their current viability plans and has given them more time to revamp them.
The viability plans submitted to the U.S. Treasury Department on February 17 "did not establish a credible path to viability," President Obama's automotive task force determined, and "are not sufficient to justify a substantial new investment of taxpayer resources."
The Obama administration will provide "adequate" working capital to give GM another 60 days to re-do its plan. Chrysler, which the task force concluded cannot survive on its own, gets another 30 days to complete its alliance with Italy's Fiat.
Bankruptcy Not Ruled Out
The administration concluded both companies, despite their different situations and different paths, have unsustainable liabilities, even if the economy improves. "Both need a fresh start," the task force concluded.
Further, the administration has not ruled out the bankruptcy courts as a means to that fresh start. "Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way," the task force's report concludes.
The report notes that it would not be a liquidation that would break up and sell off pieces of the companies, nor a conventional bankruptcy "where a company can get mired in litigation for several years." Instead, it would be "a structured bankruptcy" -- or the much-discussed pre-packaged bankruptcy -- to make it easier for GM and Chrysler "to clear away old liabilities so they can get on a path to success while they keep making cars and provide jobs in our economy."
The report makes clear that no endless well of government financial support exists. The word "finite" is used often in the report.
GM: Administration Confident of Potential Viability
The task force concluded that while GM's current plan will not make it viable, the Obama administration is "confident" with "a more fundamental restructuring, GM will emerge from this process as a stronger more competitive business."
The process, the report says, includes "leadership changes," though only CEO Rick Wagoner's departure was specified as well as GM's start of a plan with the goal of replacing a majority of board members over the coming months. "When complete, these changes will bring fresh thinking and new vision to the company while maintaining a degree of continuity in the current challenging environment," the report said. It added that the process also will involve "increased effort" by the U.S. Treasury and outside advisers.
The federal government will provide GM with working capital for the next 60 days to develop "a more aggressive restructuring plan and a credible strategy to implement such a plan."
If it does so, the administration said it will stand behind GM's restructuring plan.
Chrysler: Can't Go It Alone
The administration has "reluctantly concluded" that Chrysler is not viable as a standalone company. The report concludes that Chrysler's plan contains a number of assumptions that are "unrealistic or overly optimistic."
The administration's report notes that substantial hurdles remain before a Fiat-Chrysler agreement can be concluded. That deal, it said, must include, as Fiat and Chrysler have committed, the assembly of fuel-efficient cars and engines in U.S. factories.
The government will provide Chrysler with working capital for 30 days to settle its agreement with Fiat and secure support of necessary stakeholders, while not specified, that clearly means unions. If successful, the report said, the government will consider investing up to the additional $6 billion requested by Chrysler to help the partnership success. If not, the government will not invest additional funds.
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