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General Motors CEO Rick Wagoner to step down

The executive's move comes at the request of the White House, Obama administration officials say.

March 30, 2009|Ken Bensinger and Jim Puzzanghera

LOS ANGELES AND WASHINGTON — reporting from los angeles

In one of its boldest moves yet into a company's corporate affairs, the Obama administration forced out the head of General Motors Corp. over the weekend and prepared to put both GM and Chrysler on a short leash to retool their operations.

The administration will announce today that it has rejected GM and Chrysler's plea for an additional $22 billion in funding. Instead, it pushed Rick Wagoner out as GM chairman and chief executive, giving the company 60 days to restructure, while giving Chrysler 30 days to work out a merger with Italian automaker Fiat.

If they can't show progress, Chrysler may be left to fail and GM may be dragged into bankruptcy, said senior administration officials, who requested anonymity so they could speak frankly.

With a deadline looming Tuesday to accept the companies' restructuring plans or call in the government's previous loans, the Obama administration will do neither. Instead, officials will give GM and Chrysler more time to make the changes necessary for long-term viability.

To date, the companies and their financing arms have received $24.8 billion in government loans. Administration officials declined to specify how much more money the administration would be prepared to lend the automakers to finish their restructuring plans.

Ford Motor Co. has not requested any aid from the government.

Appearing on CBS' "Face the Nation," President Obama said Sunday that the nation could 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," he said, noting that that would "mean a set of sacrifices from all parties involved."

Obama will call today for further sacrifices from stakeholders and even threaten to force bankruptcy or cut off aid entirely should significant progress not be made by the companies' new deadlines.

In anticipation of more Rust Belt job losses, the president named Edward B. Montgomery as director for auto recovery, a new executive-branch czar charged with providing support to laid-off auto workers and their families.

And for consumers, the government will guarantee warranties on GM and Chrysler automobiles purchased in the next two months as a means of reassuring car buyers worried about the continued existence of the automakers.

"At the end of the day, if the consumer doesn't start buying these vehicles, nothing else matters," said Rebecca Lindland, auto analyst with I.H.S. Global Insight.

In laying out his strategy for addressing the challenges facing America's automakers, Obama is standing up for an industry that is as huge -- with 240,000 automaker employees in the U.S. and many times that in companies such as parts suppliers -- as it is unpopular among critics from all sides of the political spectrum.

And though the president's plan is decidedly tough, it also displays a deep desire to keep the industry alive and avoid the economic calamity that could come from its collapse, despite the increasingly long odds against it.

Since December, when President Bush agreed to lend the weakened companies a combined $17.4 billion, plus $7.4 billion to their lending arms, GMAC and Chrysler Financial, the sagging economy has taken a considerably larger bite out of auto sales.

In the first two months of the year, U.S. sales for GM and Chrysler have fallen 45%. That decline led members of an auto industry task force reporting to the president to conclude that restructuring plans submitted by the automakers last month were unsuitable.

Moreover, neither GM nor Chrysler was able to satisfy terms of the existing bailout loans, including orders to reduce unsecured company debt by two-thirds and cash obligations to retiree healthcare by half.

"We have unfortunately concluded that neither plan represents viability and does not warrant the substantial additional investments they requested," an administration official said.

A new lifeline

But because the president "decided this was an industry of crucial importance to the country," the administration is providing the two Detroit giants with an additional lifeline, short though it may be.

In doing so, however, the administration appears to be violating the terms of the December loan agreement with the automakers.

Under that agreement, the president or his designee had until Tuesday to determine whether they had met all the conditions for viability.

If not, repayment of the loans would have to take place in 30 days, although the deadline to comply could be extended an additional 30 days.

"We are not trying to delay the outcome of this process," the official said. "We want to give these companies every opportunity to succeed."

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