Night Bird's Fountain: Out: More Automotive Bailouts, GM CEO Wagner

GM CEO Rick Wagoner Stepping Down

Channel 7 - WXYZ, March 30, 2009:

Last Update 4:26 am

President Obama is tightening the screws on both GM and Chrysler. The President’s task force believes the companies are not viable and the reports they submitted last month fall short of proving the carmakers can survive.

The news comes as the task force pushed out GM CEO Rick Wagoner, saying they needed a clean slate to help rebuild the company. Chief Financial Officer Fritz Henderson will now take over as interim CEO.

Senior Administration Officials tell Action News that GM will have 60 days to reach a compromise with the UAW and bondholders. Chrysler will get thirty days. During those short windows the government will provide financial aid to both companies. If either fails to reach agreements with their stakeholders the government is likely to send them into bankruptcy.
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On the Chrysler-Fiat potential merger, we’re told it’s still in the works, but far from complete. The task force will not let Fiat take a majority stake in Chrysler unless the company pays back the money they owe the government.

Finally, in yet another surprise move, our sources tell us the government will back-up auto warranties to encourage the public to buy from GM and Chrysler in spite of their uncertain futures.

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White House Releases Auto Restructuring Plan

Channel 7 - WXYZ, March 30, 2009:

Last Update: 4:21 am

These documents are broken down into 4 parts.

First, the viability study for GM, then Chrysler.

Next, it's an overall look at both companies and finally, the Obama Administration's new warranty committment program.

VIABILITY STUDY: GM

The Loan and Security Agreement of December 31, 2008 between the General Motors Corporation and the United States Department of the Treasury (“LSA”) laid out conditions that needed to be met by March 31, including the approval of Labor Modifications, VEBA Modifications, and the commencement of a Bond Exchange (all as defined in the LSA).

As of the date of this memo, the above steps have not been completed, nor are they expected to be completed by March 31.

As a result, General Motors has not satisfied the terms of its loan agreement. Additionally, after substantial effort and review, the President’s Designee¹ has concluded that the GM plan, in its current form, is not viable and will need to berestructured substantially while GM operates under an amendment to the existing LSA. It is strongly believed, however, that such a substantial restructuring will lead to a viable GM.

This determination of viability was based on a thorough review, as conducted by the Task Force and its outside advisors and as summarized below, of the Company’s submitted plan and prospects. While there were many individual considerations, no single factor was critical to the assessment. Rather, the ultimate determination of viability was based upon a total consideration of all relevant factors, taken as a whole.

General Motors is in the early stages of an operational turnaround in which the Company has made material progress in a number of areas, including purchasing, product design, manufacturing, brand rationalization and its dealer network.

Despite these steps, a great deal more progress needs to be made, and GM’s plan contemplates initiatives that will take many years to complete. In the end, GM’s plan is based on a number of assumptions that will be very challenging to meet without a more dramatic restructuring in which many of its planned changes are accelerated. A few highlights:
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VIABILITY STUDY: CHRYSLER

The Loan and Security Agreement of December 31, 2008 between Chrysler, LLC and the United States Department of the Treasury (“LSA”) laid out various conditions that needed to be met by March 31, including the approval of LaborModifications, VEBA Modifications, and the commencement of a Debt Exchange (all as defined in the LSA).

As of the date of this memo, the above steps have not been completed, nor are they expected to be completed by March 31.

As a result, Chrysler has not satisfied the terms of its loan agreement. Additionally, after substantial effort and review, the President’s Designee¹ has concluded that the Chrysler plan is not likely to lead to viability on a standalone basis, and that Chrysler must seek a partner in order to achieve the scale and other important attributes it needs to be successful in the global automotive industry while Chrysler operates under an amendment to the existing LSA.

This determination of viability was based on a thorough review, as conducted by the Task Force and its outside advisors and as summarized below, of the Company’s submitted plan and prospects. While there were many individual considerations, no single factor was critical to the assessment. Rather, the ultimate determination of viability was based upon a total consideration of all relevant factors, taken as a whole.

The Plan that was submitted by Chrysler on February 17, 2009 reflects some progress that has been made under current management but ultimately is insufficient due to several structural issues that Chrysler, as a standalone entity, is highly unlikely to overcome. In particular, Chrysler’s limited scale in an increasingly capital-intensive global business, the inferior quality of its existing product portfolio and its heavy truck mix leave the Company poorly positioned. Chrysler’s plan to address these issues is based on overly optimistic assumptions that are inconsistent with its current products and its resources. A few key challenges:

Feds declare GM, Chrysler not viable, refuse more aid

McClatchy Newspapers, March 29, 2009:

President Barack Obama on Monday will reject requests for almost $22 billion in new taxpayer bailout money for General Motors Corp. and Chrysler, saying the car makers have failed to take steps to ensure their viability.

The government sought the departure of GM chief Rick Wagoner and said the company needed to be widely restructured if it had any hope of survival. It said it would provide the company with 60 days operating capital to give it time to undertake reforms.

The government will grant Chrysler 30 days operating funds, but said it must merge with another carmaker in order to remain viable. Talks with Italian carmaker Fiat are underway.

The administration also announced a warranty guarantee plan that administration officials hope will give consumers enough confidence that they will continue to buy the companies' vehicles.

GM and Chrysler have already received $17.4 billion in government rescue money. The two companies faced a Tuesday deadline for the government to approve plans they'd submitted weeks ago in hopes of persuading the Obama administration that they could remain in business anad deserved additional money.

But the decision from Obama was no.

The administration, however, did not demand repayment of the earlier loans. It also did not completely slam the door on the additional $21.6 billion the carmakers sought, but sent the two back to the drawing board.

A senior administration official, briefing reporters late Sunday night on the condition of anonymity in order to speak freely, said Obama will call for more sacrifice from carmakers, their investors and automotive unions.