GM's Rick Wagoner Gone, but Carmaker's Problems Remain
Obama forces out GM CEO, demands GM, Chrysler develop new plans.
March 30, 2009 — -- The stock market skidded about 250 points on the day that President Obama rejected Detroit's restructuring plans and suggested that General Motors and Chrysler may need to file for bankruptcy.
While Obama spoke of an auto industry that can survive and eventually thrive by making tough decisions, investors were jarred by Obama's tough talk and tough action.Over the weekend, the president forced GM's CEO Rick Wagoner to resign.
And today, Obama gave the two struggling car companies more time to refine their plans, but indicated Chrysler might be allowed to collapse unless it hammered out a partnership with Italy's Fiat car company.
The Dow closed with a loss of about 250 points. The drop came after more than a week of encouraging increases in stock prices.
Hugh Johnson, of Johnson Illington Advisors, said that the markets are troubled by the possibility of a bankruptcy at General Motors of Chrysler.
He added, however, that what is really causing today's drop is a fear about how involved the government is getting in the operation of individual companies. Johnson said many investors are now wondering if the government will start seeking CEO changes in other sectors.
Read George Stephanopoulos' analysis of President Obama's decision on Detroit's carmakers here.
The federal government has invested hundreds of billions of dollars in the country's banks as well as insurance giant AIG.
"It's not nationalization, but it's close to it," Johnson said.
Obama warned Detroit today of tough times ahead, but said that this could be the moment that America's auto industry "marched into the future."
The president said that Chrysler and General Motors will not get the additional $21.5 billion they requested in February because the administration determined their viability plans were inadequate.
Obama indicated today that bankruptcy is a possibility for both auto giants. He stressed that it does not mean dissolving the companies but rather using the legal system to help them clear away old debts while business operations continue.
"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," he said.
Administration officials said that using the bankruptcy code in a "quick and surgical way" could be the automakers' best options for digging out from under a mountain of debt.
In a statement, GM said it would take all necessary steps to restructure, including "a court-supervised process."
"Our strong preference is to complete this restructuring out of court," the company said.
Chrysler issued a statement shortly after Obama spoke saying it had reached agreement on a "framework" for a partnership with the Italian carmaker Fiat that Obama said could salvage the struggling American company.
Obama made it clear right at the start of his announcement that the blame for Detroit's woes was not to be placed at the feet of the American autoworkers. Instead, he pointed the finger at "a failure of leadership -- from Washington to Detroit" that drove the industry to these depths.
Nevertheless, Obama warned workers from the struggling industry that he cannot promise that the toughest days are behind them.
"These efforts ... will not make everything better overnight. There are jobs that cannot be saved. There are plants that will not reopen," he said.
Obama said he recognized that with this decision, his administration is asking these companies, unions and workers to make difficult choices and "painful concessions."