WASHINGTON – General Motors chairman and chief executive Rick Wagoner is resigning at the request of the White House, clearing the way for the Obama administration to offer the company more federal aid.
President Barack Obama is expected to unveil a plan today to prop up General Motors and Chrysler, offering them more money if the companies agree to shrink and refocus their businesses. Wagoner’s resignation was one of the White House’s conditions for more federal aid.
“He agreed and will do that,” a senior administration official said Sunday evening.
The White House’s insistence that Wagoner step down represents an extraordinary intervention of the federal government into the management of a private company. It also reflects the fact that the president and his auto task force have taken a skeptical view of the companies’ plans to restructure, which were submitted last month.
The White House plan imposes a 60-day deadline for GM to restructure. Chrysler LLC will get up to $6 billion and 30 days to complete an alliance with Italian automaker Fiat SpA.
Two people familiar with the plan said Sunday it will demand further sacrifices from the automakers and bankruptcy would still be possible if the automakers failed to restructure. The officials spoke on condition of anonymity because they were not authorized to make details public.
Obama’s plan includes government backing of warranties for GM and Chrysler vehicles to give consumers confidence in the U.S. automakers’ cars and trucks.
GM has already received $13.4 billion in government loans, and Chrysler has survived on $4 billion in federal aid. The automakers have been hard-hit by the economic downturn and the worst decline in auto sales in 27 years. In progress reports filed with the government in February, GM asked for $16.6 billion more and Chrysler wanted $5 billion more.
But the officials said the Obama plan would not go that far, providing short-term aid in exchange for significant sacrifices.
The officials said the administration did not view Chrysler to be viable as a standalone company. Under the plan, the government would provide up to $6 billion to forge the alliance between Chrysler and Fiat, but if the companies failed to reach an agreement or find an alternative plan for viability, Chrysler would not receive additional federal aid.
Fiat executives have talked to the White House auto task force about a proposal to acquire a 35 percent stake in Chrysler in exchange for small-car technology, transmissions and other items that Chrysler has valued at $8 billion to $10 billion.
General Motors, meanwhile, would have a limited window to work with the United Auto Workers union, bondholders and other stakeholders and would receive an undisclosed amount of “interim financing” over 60 days to restructure the company. The officials said the administration would determine how much GM would need in “permanent capital” during the 60-day period.
If GM failed to reach the concessions needed, some type of bankruptcy could be used at the end of 60 days, the officials said.
The administration planned to send a team to Detroit to help with the restructuring during the next 60 days. With Wagoner’s departure, new management would be decided by General Motors’ board of directors in consultation with the government. An official said a majority of the GM board was expected to step down.
Obama, in an interview with CBS’ “Face the Nation” broadcast Sunday, said the companies must do more to receive additional financial aid from the government.
“We think we can have a successful U.S. auto industry. But it’s got to be one that’s realistically designed to weather this storm and to emerge – at the other end – much more lean, mean and competitive than it currently is,” Obama said.
Obama said the government would require a “set of sacrifices from all parties involved – management, labor, shareholders, creditors, suppliers, dealers. Everybody’s gonna have to come to the table and say it’s important for us to take serious restructuring steps now in order to preserve a brighter future down the road.”
Both companies are trying to reduce their debt by two-thirds and persuade the UAW to accept several cost-cutting measures.
Very little was being done in negotiations with debt-holders and the union ahead of Obama’s announcement, a person briefed on the GM talks said Sunday. This person did not want to be identified because the negotiations are private.
Under the terms of a loan agreement reached during the Bush administration, GM and Chrysler are pushing the UAW to accept shares of stock in exchange for half of the payments into a union-run trust fund for retiree health care. They also want labor costs from the union to be competitive with Japanese automakers with U.S. operations.
Neither GM nor Chrysler has deals with the union on the trust funding or concessions from their debt-holders.
GM and Chrysler, which employ about 140,000 workers in the U.S., face a Tuesday deadline to submit completed restructuring plans, but neither company is expected to finish its work. The administration’s plan would be designed to accelerate those efforts.
GM owes roughly $28 billion to bondholders. Chrysler owes about $7 billion in first- and second-term debt, mainly to banks. GM owes about $20 billion to its retiree health care trust, while Chrysler owes $10.6 billion.
In February, GM said it intended to cut 47,000 jobs around the globe – nearly 20 percent of its work force – close hundreds of dealerships and focus on four core brands: Chevrolet, Cadillac, GMC and Buick.
Chrysler issued two scenarios in its February plan: one as a distinct company, and the second in an alliance with Fiat. Chrysler said in its February report that it would cut 3,000 workers and eliminate three vehicle models: the Dodge Aspen, Dodge Durango and Chrysler PT Cruiser.
Subscribe to the Coronavirus newsletter
Get the day’s latest Coronavirus news delivered to your inbox by subscribing to our newsletter.