GM's future at stake as Obama's team steps in

— -- President Obama left a big question mark over the future of the U.S. auto industry Monday when he made it clear he is willing to offer limited aid to General Motors and Chrysler but warned they must restructure much faster or end up in bankruptcy court.

Obama blamed a "failure of leadership, from Washington to Detroit" for bringing the automakers so close to collapse. But his auto task force, he said, had determined that turnaround plans laid out by GM and Chrysler had failed to prove they can turn the automakers around. And over the weekend, the administration signaled its willingness to have the government intervene more directly in their future when it forced out GM CEO Rick Wagoner.

The president's plan balances two competing forces that are swirling around Americans' economic anxieties: growing public outrage over corporate bailouts and fear that if the auto industry sinks, it will take millions of jobs and the fragile economy down with it.

The White House also has given different courses of action for the two automakers: It made clear it will try to save GM GM, but Chrysler essentially is being cut loose.

Obama gave GM 60 days — under new leadership — to determine what to do about its massive amounts of debt, get concessions from workers, slash dealers and cut its roster of auto brands. The company also must prove it can make money in a normal sales market.

Chrysler, much smaller and considered less critical to the U.S. economy, has just 30 days to complete its proposed deal with Italian carmaker Fiat, or else its federal funding will dry up. The administration said it has determined that Chrysler can't make it as a stand-alone company.

"What we are asking is difficult," Obama said in his announcement of the auto plan Monday morning. "It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts.

"Only then can we ask American taxpayers who have already put up so much of their hard-earned money to once more invest in a revitalized auto industry," he said.

Many Americans oppose bailout money going to GM and Chrysler. The government has lent the companies a combined $17.4 billion; they've asked for an additional $21.6 billion.

In a USA TODAY/Gallup Poll last weekend of 1,007 adults, 59% said they disapproved of even the federal loans already given GM and Chrysler last year to keep them out of bankruptcy court.

Asked about their approval of five government policy actions in response to the recession, respondents disapproved most of the loans to automakers.

A symbolic move?

The public's dislike of the auto loans may be one reason the administration moved to oust Wagoner, analysts said.

"The public is obviously very angry about all these bailouts the companies are getting," said Stephen Spivey, senior auto industry analyst for Frost & Sullivan. "By showing Wagoner the door, the administration can say, 'Look, we're doing something here. We're not giving them money for no reason.' "

"If you need the symbolism of a head to show, maybe it's the right move," said David Cole, chairman of the Center for Automotive Research. "From the political side, they need as much cover as they can get."

On a day when the government's increased involvement with GM helped to drop the Dow Jones by 3.3% to 7522, GM shares closed at $2.70, down 25.4%. Shares had risen recently as investors bet bankruptcy would not be an option for GM, and they fell after the president made clear that such a restructuring was not off the table.

It's unclear what GM or Chrysler would look like if they went through a government-managed bankruptcy process, but Obama said, "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."

Ultimately, his task force decided it had no faith in the GM turnaround plan's projections about market share, about when auto sales will rebound and even what the company's profit margins per vehicle could be.

Pat O'Keefe, managing member of O'Keefe & Associates, said GM was "pummeled" for being too optimistic in its projections.

"They had a lot of swagger," O'Keefe said. "What these guys haven't figured out yet is they only have 20% of the market today and their bonds are junk, so you have to have a whole different approach."

'We need to move faster'

Frederick "Fritz" Henderson, a Detroit native and 25-year veteran of GM, was named the company's new CEO. He said Monday the government's increasing demands that GM get debt off its balance sheet means there's a rising risk that the company will have to reorganize through bankruptcy.

Henderson told reporters on a conference call that the company still would prefer to restructure outside of court. "We need to move faster and even deeper," he said. "Our job is to run with that."

But he also noted that consumer support mechanisms that Obama outlined Monday — most prominently government backing for vehicle warranties — would provide a better cushion for the company if it had to reorganize through a bankruptcy filing.

Obama's plan contains more than just aggressive restructuring for auto companies. It includes:

•The nomination of Edward Montgomery as director of auto recovery. Montgomery, a top labor economist and former deputy secretary of Labor, will work to funnel emergency funding to areas of the Midwest that have been hit hard by auto sector job losses.

Ground zero of those job losses is Michigan, where the unemployment rate is 12%.

"When a community is struck by a natural disaster, the nation responds to put it back on its feet," Obama said. "While the storm that's hit our auto towns is not a tornado or a hurricane, the damage is clear, and we must respond."

Naming Montgomery to the newly created post indicates the administration fears things may get worse before they improve in states such as Michigan, Ohio and Indiana.

Rep. Gary Peters, D-Mich., whose district includes many auto suppliers and Chrysler's headquarters, said he agrees that the area is already in an economic disaster.

"There is no question that Michigan is hurting right now, and that Michigan needs the help," he said.

Austan Goolsbee, a member of the auto task force, said Montgomery's appointment reflects what is already one of the worst years for the auto industry.

"It's simply a recognition that this is a painful restructuring," Goolsbee said. "It's not so much what's to come, as to what they've already faced."

•A program backstopping vehicle warranties from GM or Chrysler. GM has argued that it can't file for bankruptcy protection because consumers would stop buying its products out of fear that their warranties would no longer be valid.

Dennis Smith of Felts Mills, N.Y., said the government's backing of GM's and Chrysler's warranties, coupled with a good deal at the dealership, would be enough to make him buy one of the companies' vehicles.

"I would feel secure buying a GM (or) Chrysler product," Smith said. "I really can't see the government letting GM go completely under. The loss of jobs would be catastrophic to an already fragile economy."

The bailout may already be affecting consumer behavior.

While the entire industry has taken a beating this year, with auto sales down 39.4% for the first two months, GM and Chrysler are doing far worse than their rivals are. GM's sales are down 51.1% this year, and Chrysler's are down 49.1%.

That's because folks such as Robert Williams of Oxford, Conn., are waffling on whether to buy American cars. He said he's not sure now he would buy even from Ford, which hasn't asked for government aid, even though he's owned many American-made cars.

"I am not sure I would buy a Ford, GM or Chrysler right now until I knew their long-term health," Williams said.

"In fact," he said, "I have been planning and saving to buy a new GM Camaro convertible when they became available next year, but I have backed off that plan and will not buy until I am sure the company is going to be around awhile."

•Support for a "cash-for-clunkers" program. Obama expressed support for a bill making its way through Congress now that would give buyers $3,000 to $5,000 to trade in their older wheels for a more fuel-efficient car or truck.

"Fleet modernization" programs such as the one proposed have already proved to be successful in Europe, he pointed out.

The president said he wants Congress to find room in the recent economic recovery act to fund the program and make it retroactive starting Monday.

'A very positive day'

Meanwhile, congressional Democrats focused on what they described as positive statements from the White House, namely Obama's assertion that he is committed to ensuring a viable U.S. auto industry.

"This was a very positive day for the automobile industry," said Sen. Carl Levin, D-Mich., because Obama "is absolutely committed to this industry."

But critics said the president overstepped by forcing Wagoner out.

Sen. Bob Corker, R-Tenn., said the move was "a power grab." That level of federal control over GM "should send a chill to the people in this country," he said.

GM should never have gone to the government asking for help, said Gerald Meyers, former CEO of American Motors.

"It was a terrible mistake, pleading poverty and going to Washington asking for money," Meyers said.

The company could have survived without government help if Wagoner had been willing to search out alternative forms of financing, similar to the recent investments in Daimler by the sovereign fund of Abu Dhabi, he said.

But others said the problems in Wagoner's leadership ran deep.

Noel Tichy, professor of management and organizations at the University of Michigan's Ross School of Business, said Wagoner showed he couldn't react fast enough to the changes in the industry.

"He had great intellectual bandwidth, but he didn't have the edge," Tichy said. "He was just too slow on the important judgments he had to make."

Rep. John Dingell, D-Mich., called Wagoner a "sacrificial lamb."

Dingell expressed a long-held frustration by some lawmakers on Capitol Hill and officials in Michigan who say the White House is holding the auto industry to a harsher standard than the troubled financial industry, which received hundreds of billions of dollars in federal bailout money.

"The auto industry, which provides high employment, is absolutely essential to the American economy but is treated much more shabbily by society and the American government than are companies like AIG, Citigroup and others," Dingell said.

Carty reported from Detroit.

Contributing: David Jackson and John Fritze in Washington, Jayne O'Donnell in Virginia and The Associated Press