Washington, D.C. – Saying that the restructuring plans submitted by General Motors and Chrysler “did not establish a credible path to viability,” the U.S. government has laid out a finite path for both companies to restructure and succeed, including the immediate resignation of General Motors CEO Rick Wagoner, and a government-approved partnership of Chrysler with Fiat.
The Obama Administration said that the findings and the new framework for success “are consistent with the President’s commitment to support an American auto industry that can help revive modern manufacturing and support our nation’s effort to move toward energy independence, but only in the context of a fundamental restructuring that will allow these companies to prosper without taxpayer support.”
In its statement, the government said that the plans submitted by GM and Chrysler in February 2009 did not establish a credible path to viability and in their current form, are not sufficient to justify a substantial new investment of taxpayer resources. Each company will have a set period of time and an adequate amount of working capital to establish a new strategy for long-term economic viability.
General Motors will be provided with working capital for 60 days, to develop a more aggressive restructuring plan and a credible strategy to implement such a plan. “While GM’s current plan is not viable, the Administration is confident that with a more fundamental restructuring, GM will emerge from this process as a strong, more competitive business,” the statement said. “This process will include leadership changes at GM and an increased effort by the U.S. Treasury and outside advisors to assist with the company’s restructuring effort. The Administration will stand behind GM’s restructuring effort.”
Regarding Chrysler, the statement reads, “After extensive consultation with financial and industry experts, the Administration has reluctantly concluded that Chrysler is not viable as a stand-alone company. However, Chrysler has reached an understanding with Fiat that could be the basis of a path to viability. Fiat is prepared to transfer valuable technology to Chrysler and, after extensive consultation with the Administration, has committed to building new fuel-efficient cars and engines in U.S. factories. At the same time, however, there are substantial hurdles to overcome before this deal can become a reality.
“Therefore, the Administration will provide Chrysler with working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders. If successful, the government will consider investing up to the additional $6 billion requested by Chrysler to help this partnership succeed. If an agreement is not reached, the government will not invest any additional taxpayer funds in Chrysler.”
The government said that the original partnership between Chrysler and Fiat was unacceptable for several reasons, including the fact that Fiat could have gained majority ownership of Chrysler before U.S. taxpayers had their investment returned. After consulting with the President’s Automotive Task Force, Chrysler and Fiat have agreed to important changes in their original agreement that would provide greater protection for U.S. taxpayers, and help ensure that new, fuel-efficient Chrysler cars and engines are built in the U.S.
The Administration said that while the two companies have different paths to take, “both have unsustainable liabilities and both need a fresh start. Their best chance at success may well require utilizing the bankruptcy code in a quick and surgical way. Unlike a liquidation, where a company is broken up and sold off, or a conventional bankruptcy, where a company can get mired in litigation for several years, a structured bankruptcy process — if needed here — would be a tool to make it easier for General Motors and Chrysler to clear away old liabilities so they can get on a path to success, while they keep making cars and providing jobs in our economy.”
The government has agreed to stand behind the warranty on new cars purchased from GM or Chrysler during this period, through a special warranty commitment program.
The Administration also announced that Edward Montgomery, labour economist and former Deputy Secretary of Labor, will serve as Director of Recovery for Auto Workers and Communities, and will work to leverage all government resources to support workers, communities and regions that rely on the American auto industry.