At the beginning of the year, General Motors CEO Rick Wagoner stood onstage at the International Auto Show in Detroit alongside a sign that read "Here to Stay." It was, as it turned out, wishful thinking.
Not even four months later, the Obama Administration has told Wagoner to go, making him the first high-level casualty in what is sure to be a painful and perilous restructuring process for GM, a fallen corporate giant whose name was once synonymous with U.S. industry. White House officials have determined that the viability plan Wagoner submitted in February a condition of the billions in aid the government loaned the company late last year lacks credibility. As such, President Barack Obama has decided on a "clean-sheet-of-paper approach" that will involve new management and significant losses for the company's creditors, suppliers, dealers and workers, according to senior Administration officials. "Even greater sacrifices will be required from all stakeholders," one official said. (See the 50 worst cars of all time.)
At the same time, the White House has determined that Chrysler, another struggling automaker, will have to find a way in the next month to come to a partnership agreement with the Italian automaker Fiat, or face a likely dissolution; the White House has no plans to request the resignation of Chrysler's CEO, Robert Nardelli. Since late last year, both GM and Chrysler have sustained themselves on $17.4 billion in U.S. government aid. The third major U.S. auto company, Ford, has thus far declined any bailout funds, saying it has enough cash and credit to continue operations through 2009, despite an industry-wide collapse in car and truck sales.
On Sunday, the White House made clear that it is taking steps to soften the blow on both the workers and consumers who will be affected by the restructurings. The Treasury Department plans to sponsor a program to insure the warrantees on any new GM or Chrysler car purchased during the restructuring period, even if the companies collapse. In a speech on Monday morning, Obama is expected to announce the appointment of Edward Montgomery, a labor economist, as the new Director of Recovery for Auto Workers and Communities to help funnel government aid to those areas most affected by the fallout, from plant closings to salary and benefit cuts. (See 25 people to blame for the financial crisis.)
The package of proposals amounts to tough medicine for an industry that has long enjoyed significant influence among Washington lawmakers. But Obama has consistently maintained that he is unwilling to subsidize a failing industry indefinitely. In an interview broadcast on Sunday by CBS News, Obama called for a "set of sacrifices from all parties involved," including creditors, suppliers, dealers, labor and shareholders, that would lead to "serious restructuring steps." "They're not there yet," the President added, of the automakers' turnaround plans.