Obama: Chrysler, GM plans inadequate, demands further restructuring

Following the announcement that Rick Wagoner stepped down as Chairman and CEO of General Motors, President Obama declared today that the restructuring plans “submitted by GM and Chrysler … did not establish a credible path to viability. In their current form, they are not sufficient to justify a substantial new investment of taxpayer resources.”

In addition, “the Administration has reluctantly concluded that Chrysler is not viable as a stand-alone company.” A merger with Fiat, however, could provide a viable future for Chrysler, Obama said. He gave Chrysler 30 days to finalize the deal with Fiat. In the meantime, the government will provide $6 billion to cover Chrysler’s day-to-day operations.

Regarding GM, he said he “is confident that with a more fundamental restructuring, GM will emerge from this process as a stronger more competitive business.” He gave GM 60 days to submit a more aggressive restructuring plan.

The Administration has not ruled out bankruptcy for the two automakers, however. Both companies, Obama said, “have unsustainable liabilities and both need a fresh start. Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way. A structured bankruptcy process – if needed here – would be a tool to make it easier for General Motors and Chrysler to clear away old liabilities so they can get on a path to success while they keep making cars and providing jobs in our economy.”

Obama named Edward Montgomery as a new Director of Auto Recovery to aid communities hard hit by the “carpocalypse,” and direct existing recovery funding to those communities.

Meanwhile, for consumers, he announced that the government will guarantee warranties on Chrysler and GM cars, in an effort to stave off further deterioration in their sales. (See "Car buyers hesitant to buy from bankrupt automakers.")

—Eric Evarts

Read “U.S. government to back Chrysler, GM car warranties” and "Detroit Report Cards."

Comments

[Byron Horn]

Historically our auto companies have turned out vehicles of questionable reliability and often lacking cutting edge advancements. Two things have caused this. One is the (all American producers) philosophy that caused the above and the other is a lack of top qualified engineers that can design high quality cars. Our best engineers are producing machines of war. We aren't at war with any government. Our government needs to cut back on defense spending and replace the questionable engineers working for GM and Ford with some of these proven top engineers and the young engineers graduating at the top of their classes.
The two problems are attitude and poor engineering.

[David]

I disagree that the government should step in everywhere. If the business isn't attracting good talent through attractive and better wages, it is because they cannot produce the revenue to generate the more attactive wages (which is what we have here)for the smart guys at DOD jobs who are protecting us with their innovations. If they cannot offer the competitive attractive wages it is either because their business model is bad their business acumen is bad or the product itself is bad. In the case of GM, it may be more than one of these. In the near future we may find another hurdle which entrepreneurs in other countries have to overcome--that is when the laws and ordinances of the land have a stifling effect on new enterprise.

[Jersey Pratt]

I doubt the engineers designing planes at Boeing and Lockheed are that much better than the engineers designing Corvettes, Mustangs and Vipers at GM, Ford or Chrysler. There was and is really only one problem with American automakers, and no one seems willing to say it plainly -- American automakers take too much money for employees at both the top and bottom, and don't put enough money into the development, production and quality of cars. It doesn't matter if it's the executive who gets a huge bonus even when sales fall, or the line worker who gets paid full wages while on layoff from a plant that produced a inexcusably poor quality car -- the automakers have found perverse ways of rewarding failure. Even now, when they are approaching oblivion, executives and especially the unions fail to face up to the fact that the cost structure of American automakers can't compete with that of the Japanese or Koreans. Every feature that Americans add to their cars can be duplicated and/or surpassed at lower cost and higher quality by other companies using far lower cost labor in Korea, Alabama or even Ohio. You can't starve the cow (parts and development) and expect to keep getting milk. When executives quit awarding themselves bonuses and incentive pay for terrible results, and the unions agree that members will work for two-thirds or half current pay until their companies recover, then U.S. automakers will build cars the rest of the world can't match -- with the same amazing engineers they've always had. Good cars first, then good pay. There are no shortcuts.

[Nathan S.]

Although the economy would be hurt in the short term, I would love to see both GM and Chrysler go bankrupt. GM and Chrysler need to get rid of their union contracts to be able to produce vehicles for the same price that the Japanese manufacturers make cars. Ironically Japanese car manufacturers are continually making more jobs in the U.S. while, because of extremely high union costs, American cars companies are sending jobs out of the U.S. Another irony of all this mess, Japanese car companies can manufacture better built and designed cars IN AMERICA for less than American car companies can build their awful cars here. A real solution is bankruptcy, getting rid of the awful union contracts, getting real engineers to design efficient, quality cars, and offering it all, for less money than comparable Japanese cars. I think a fresh start is the best solution, not to punish American workers, but to clean out these car companies whose management and union contracts have been running these once great companies into the ground. Maybe after GM and Chrysler have started on the path to recovery, Ford could also declare bankruptcy to clear out these union deals. I believe there is no need for unions in the auto industry with current safety and health standards the government imposes and maintains; unions are just another outdated system in these modern times. In all reality it is greed that has brought these companies to this. The leaders of both the union and these companies have cared all too much about money, producing awful cars that would eventually not meet the wants and needs of the American consumer, all to make a quick buck. I want these companies to succeed, but it's hard to swim when your arms and legs have been cut off and someone has tied cinder blocks to your torso. These companies can do it, they just need hard work, determination, and a compassion for others.

[JLT]

Don't blame the Union employees. Blame the management of Chrysler, Ford and GM. The union contracts are crazy and out of touch. Chapter 11 bankrupty will be the best solution. Hopefully, the auto makers will make more fuel efficient vehicles that are reliable. Chrysler cars are horrible, GM has too many vehicles and Ford likewise. Will Common Sense please stand up?

[Sharon Pretty]

I blame the average US consumer for having continued to buy poorly designed and poorly made US cars for too long, instead of making it clear to US auto makers that the average US consumer wanted better.

Even before Japan entered the global car market, compared to the best of the European marques, most US made cars had second rate handling and road handling, accompanied by third rate fuel efficiency and safety, accompanied by uninspiring reliability.

The only thing that US made cars have ever had going for them was they were cheap; and they appealed to the naive sort of US patriotism and jingoistic family values that leads a family to hang out the Stars and Stripes on the front lawn to let all their neighbours know how proudly American they are.

When has a US car maker ever made a great sports car - that is one that can not only go like a rocket in a straight line but can hold a corner at speed? Answer, never. When has a US car maker ever invented a really crisp manual gear box? Answer again never - because most US drivers can't even operate a manual gear box! When has a US auto maker invented a safety measure like self-tensioning seat belts? Come again? Most US drivers don't even wear seat belts, because they are not legally required to do so in most states and they're too dumb to appreciate the safety benefits.

Belatedly of course, the big US car makers have woken up to the need to design quality cars. But as with so much that happens in the US, it's too little too late.

[RAH]

Do we really want career politicans and lawyers running a car company?? The auto business is a lot more complicated than producing an electric car..

[JerseyPratt]

Why wouldn't we blame the unions when at this very minute, they are vowing to fight President Obama for not giving them more money for a bailout without requiring vitally needed increases in wage cuts and gains in productivity? The Japanese unions helped impose discipline on the work force, making their companies strong. The UAW refuses to do anything for the consumer or for the long term viability of their companies without counterproductive concessions that guarantee that situation will only get worse. The UAW is so out of touch with reality that it thinks its only job is to demand more pay, and more benefits from dying companies that make uncompetitive products, and now demand with incredible audacity a bigger bailout from U.s. citizens, most of whom who don't get anywhere near the pay and benefits and job protections and never will. Many of those people (100,000 plus) work for other auto companies and their suppliers. They know that will find life more difficult because of increased competition in their industry if this bailout succeeds! Why should they bail out unionized competitors who are doing a lousy job, especially when the workers STILL won't take responsibility and agree to real sacrifices to make their companies viable? If we don't demand that the unions take responsibility for the failures of their companies, we will not see a resurrection of the traditional Big 3 automakers. Those jobs will disappear, especially unionized jobs. But that's better than agreeing to bailouts that won't work when union labor won't get real.

[Fred Doyen]

Take it from a Lockheed engineer, who designs airplanes for a living. There are a lot more of us designing airplanes than cars. Why? If an airplane quits working, it falls from the sky. If a car quits working, you call a taxi.

American engineers are the best in the world, whether aircraft or roadcraft. We design and build what we're told to produce. It's the bean counters who are to blame for America's ills.

We should kick all politicians, lawyers and bean counters out and put engineers in charge of everything. Only then would you have a perfect world.

[Dick Saunders]

Management at Chrysler, Ford & GM are only to blame! Twenty years ago GM purchased EDS and installed H.Ross Perot on it's board. Mr. Perot recognized the problems and vocalized them until he was paid $700 million to leave the company and shut up! The P.O. policy or planned obsolete policy used by Detroit convince me twenty years ago to buy a Honda and I have ever since.
Ford products are the only American vehicles I would buy because they have significantly improved their quality other than Honda.

Dick S.