Why is GM better off than Chrysler? White House points to Consumer Reports ratings

As President Barack Obama announced today, his administration believes that General Motors can restructure and be successful, but the president said Chrysler needs a partner to survive.

If you're wondering what, in the White House's opinion, separates the two companies' pursuits of success, there are several answers.

Chrysler is a smaller company, while GM has "a much more substantial collection of assets," a senior administration official told reporters on a conference call this weekend.

Here's one measure the government's auto task force used to determine the value of those assets that Mike Allen of the Politico called the "Consumer Reports Factor."

"If you look at things like Consumer Reports' ranking of cars, you'll see very great differences between those two companies," the White House official said. "Chrysler has zero cars, no cars that are recommended by Consumer Reports."

That administration official was correct, no Chrysler, Dodge, or Jeep models are recommended by Consumer Reports.

To be Consumer Reports recommended, a vehicle must have performed well in CR's tests, have average or better reliability, and, if crash-tested, provide good overall safety. This safety rating is a composite of accident avoidance from our testing and crash protection, based on insurance-industry and government crash tests. (Watch our videos about how CR tests cars.)

But CR's car experts did find some bright spots for Chrysler. In our Report Card for Detroit, Chrysler got this assessment:

Chrysler needs to give its model line a major overhaul and raise its reliability, interiors, fuel economy, and overall refinement up to the level of its styling.

That might have begun. Our initial impressions of the redesigned 2009 Dodge Ram pickup we're testing are mostly positive, and the ride is markedly improved. Newer Chrysler models, such as the Dodge Journey and Ram, have higher-quality interiors.

On the other hand, several recent GM models have performed well in Consumer Reports testing and have average or better predicted reliability.

The Chevrolet Avalanche was a Consumer Reports Top Pick in the pickup truck category, and other models fare well in their classes.

However, just 17 percent of the GM models tested meet the criteria to be recommended.

By contrast, 70 percent of models from Ford, Detroit's least endangered car company, are recommended by Consumer Reports.

The Report Card's look at GM's future:

GM needs to maintain the overall performance and quality it has shown in its newer models while developing a stronger line of small vehicles and raising its reliability to a more consistently high level.

The company is developing more efficient gasoline engines, using direct injection and turbocharging to help achieve a better balance of power and fuel economy. Its more fuel-efficient two-mode hybrid technology is expected to be available on more models. And it's investing heavily in electric powertrains, such as that in the forthcoming Chevrolet Volt, and in fuel-cell technology.

GM's next generation of small cars, including the Chevrolet Cruze, looks promising. And the company is active in developing interactive traffic-safety systems, wireless service checks, and other advanced applications.

If you're looking for the best makes from domestic companies, our 2009 list of American top picks is here.

Visit the Consumer Reports Cars page for all of our testing results, recommendations, and buying advice.

Obama's Detroit determination: GM "can rise again," Chrysler needs a partner

President Barack Obama broke the bad news to the General Motors and Chrysler, officially announcing that neither of the struggling companies will be given the money they need to survive without the government stepping in.

Plans submitted to the Obama administration by the two auto giants did not meet the White House's expectations for restructuring, the president said today, and neither Chrysler nor GM warrants "the substantial new investments that these companies are requesting."

However, funds will be provided to allow time for a more aggressive plan to be developed. (See the good and the bad Consumer Reports found from Chrysler and GM.)

GM did get a slightly more upbeat appraisal from the president, sending the struggling automakers to go back to the drawing board.

"While GM has made a good faith effort to restructure over the past several months, the plan they have put forward is, in its current form, not strong enough," Obama said. "However, after broad consultations with a range of industry experts and financial advisers, I’m confident that GM can rise again, provided that it undergoes a fundamental restructuring."

The government will give GM enough cash to operate for another 60 days, but there are strings attached. Rick Wagoner, the company's CEO and chairman, will step down. (Read more about GM’s executives on CR’s Cars Blog.)

GM will have to work with the White House's autos task force to come up with a plan to meet four points:

• Sustainable profitability: A viable GM should be able to generate meaningful positive free cash flow in a normalized business environment, generate net free cash flow over the course of a business cycle and invest capital in research and development and capital expenditures sufficient to maintain or enhance its competitive position while also earning an adequate return on its capital.
• A healthy balance sheet: The restructuring must substantially reduce GM’s outstanding debt and existing liabilities to a level where they are consistent with both its normalized cash flow and the cyclical nature of its business. Given the deterioration in the auto market since late last year, this will require substantially greater balance sheet concessions than those called for in the existing loan agreements.
• More aggressive operational restructuring: The restructuring plan must rapidly achieve full competitiveness with foreign transplants and more aggressively implement significant manufacturing, headcount, brand, nameplate and retail network restructurings.
• Technology leadership: The new GM will have a significant focus on developing high fuel-efficiency cars that have broad consumer appeal because they are cost-effective, have good performance and are reliable, durable and safe.

Chrysler got a less hopeful review from the White House.

"It is with deep reluctance but also a clear-eyed recognition of the facts that we have determined, after a careful review, that Chrysler needs a partner to remain viable," Obama said. "Recently, Chrysler reached out and found what could be a potential partner – the international car company Fiat, where the current management team has executed an impressive turnaround."

The president said that Chrysler has 30 days to make a Fiat deal happen. The government will hand out enough money for Chrysler to keep running in that time. If the two can make a partnership happen, the government will "consider lending up to $6 billion to help their plan succeed."

Obama left open the option that one or both of the companies may have to declare bankruptcy. He did try to make that prospect less threatening for employees, consumers, and shareholders.

"I know that when people even hear the word 'bankruptcy' it can be a bit unsettling, so let me explain what I mean," Obama said. "What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler 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. What I am not talking about is a process where a company is broken up, sold off, and no longer exists. And what I am not talking about is having a company stuck in court for years, unable to get out.”

The president also said that the government will back GM and Chrysler warranties. That may or may not alleviate the fears of car buyers, 78 percent of whom said they were unlikely to consider buying a new car from an automaker in bankruptcy, according to a recent Consumer Reports survey.