Obama hammers GM; Chrysler, Fiat deal takes shape

WASHINGTON -- General Motors gm and Chrysler must "fundamentally restructure" their companies in order to qualify for more federal taxpayer dollars, President Obama warned Monday.

Obama said his auto task force does not believe the plans GM and Chrysler delivered in February can result in viable companies and that he is giving them more time, along with an aggressive set of conditions.

"Our auto industry is not moving in the right direction fast enough to succeed," Obama said in remarks at the White House. He said it will require "hard choices" and "painful concessions" by companies, unions, workers and creditors in order to meet requirements for government help.

GM and Chrysler are operating on a combined $17.4 billion in government loans approved by the Bush administration in December. They had until March 31 to prove they were viable to qualify for more loans. The two automakers have asked for another $21.6 billion.

The president's auto task force said Chrysler needs to partner with the Italian car company Fiat, which has "committed to building new fuel-efficient cars and engines right here in the United States," Obama said in a speech at the White House.

"Fiat is prepared to transfer its cutting-edge technology to Chrysler," he said.

He gave Fiat and Chrysler 30 days to reach an agreement and said the government will provide Chrysler with "adequate capital" to operate in the meantime.

Later, on Chrysler's website, Chairman and CEO Bob Nardelli said Chrysler and its parent, Cerberus Capital, have "reached agreement on the framework of a global alliance" with Fiat.

Obama spoke as GM Chairman Rick Wagoner resigned at the behest of the White House. Obama said the decision is not "a condemnation" of Wagoner, but rather "a recognition that it will take a new vision and new direction to create the GM of the future."

Wagoner said in a written statement that administration officials asked that he "step aside."

Michigan Governor Jennifer Granholm said Wagoner "clearly is a sacrificial lamb" who stepped aside "for the future of the company and for the future of jobs." She spoke on NBC's Today show Monday.

Stepping into the CEO job at GM is Fritz Henderson, the automaker's chief operating officer. Board member Kent Kresa will be chairman.

Obama said the government will offer GM enough "adequate working capital" over the next 60 days to come up with a new business plan, working with the auto task force.

Both companies may also need to file for bankruptcy "as a mechanism to help them restructure quickly and emerge stronger," he said.

Henderson said Monday that GM would still prefer to restructure outside of court, but the level of support Washington is offering would help the company quickly restructure through bankruptcy.

"Our strong preference is to complete this restructuring out of court," Henderson said. "However, GM will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process."

Wagoner and the top automaker's board had long argued that bankruptcy by any of the major automakers would threaten thousands of jobs, including suppliers, and could lead to a GM liquidation.

Ford Motor f, the third member of the Detroit Three, has not requested federal bailout funds, and was not included in the president's remarks.

Obama also announced several steps to reassure consumers, and improve the chances that U.S. automakers will be able to sell their cars and trucks.

The president said the government will now stand behind warranties issued by the carmakers, a sweeping new guarantee that some in Congress had sought.

He also noted that the economic stimulus legislation he recently signed allows the purchasers of new domestic cars to deduct the cost of any sales and excise taxes. Obama said this provision could "save families hundreds of dollars and lead to as many as 100,000 new car sales."

He also said funds ticketed for the purchase of new vehicles for government agencies would be spent as quickly as possible. The president was flanked by numerous administration officials as he spoke, including Treasury Secretary Tim Geithner.

Obama cited Michigan's double digit unemployment rate. He said the industry has lost more than 400,000 jobs over the past year, including auto parts suppliers and dealerships.

Auto workers have not been the problem, Obama said, but rather "a failure of leadership from Washington to Detroit that led our auto companies to this point."

"Year after year, decade after decade, we've seen problems papered over and tough choices kicked down the road even as foreign competitors outpaced us," he said.

While restructuring will be "painful" in the short term, Obama said it will also "mark not an end, but a new beginning for a great American industry."

Obama noted that the nation responds to areas that are hit by natural disasters.

"While the storm that's hit our auto towns is not a tornado or a hurricane, the damage is clear and we must respond," he said.

That includes creation of a "Director of Recovery for Auto Communities and Workers" to help manufacturing workers and their families who have lost jobs, Obama said. He appointed Edward Montgomery, a former deputy Labor secretary, to the post.

In a statement Senate majority leader Harry Reid commended the administration for "showing a firm resolve in its negotiations with GM and Chrysler. We will not give these companies a blank check. As we have maintained since the earliest days of this crisis, if these companies do not develop strong plans to remain viable in the long term, they will lose our support."

Darrell Issa, R-Calif., and ranking member on the House Committee on Oversight and Government Reform, also praised Obama's plan.

"We all recognize the role these companies play in the overall composition of our economy and we want them to succeed," he said. "It has become abundantly clear that in order to remain viable and competitive, these companies must re-organize, revamp and restructure."

In Warren, Mich., Chrysler employees reacted warily to a Chrysler-Fiat pairing and angrily to the administration's moves.

"Right now it looks like our only hope," 37-year-old lineman Douglas Kozak at the Warren Truck Assembly plant said of the possible deal with the Italian automaker. "You've got to expect the worst and hope for the best."

Machine repairman Don Thompson, a nearly four-decade Chrysler veteran, said the automakers are being punished because of populist anger over the financial bailout.

"They're using us for the mistakes they've made in Washington," Thompson said.

While they're working on improving their plans, the two car companies will receive just enough money to keep operations going.

Global automakers reacted with anxiety to news that GM and Chrysler had failed to submit acceptable plans to receive more government money, although some welcomed the ousting of Wagoner as a promising sign of change.

Nissan, Toyota and other Japanese automakers have repeatedly said the collapse of any major U.S. carmaker would hurt them in their critical North American business because they share the same parts suppliers such as Delphi, Bosch Auto Parts and TRW Automotive.

In Frankfurt, shares of Daimler and BMW fell nearly 8%. In Tokyo, shares of Toyota fell 3.7%, Honda Motor shed 6.7%, and Nissan Motor dived 7.7%.

GM and Chrysler employ about 140,000 workers in the U.S. In February, GM said it intended to cut 47,000 jobs around the globe, or almost 20% of its workforce, close hundreds of dealerships and focus on four core brands — Chevrolet, Cadillac, GMC and Buick.