Washington: The Obama administration on Monday seized the wheel of the failing US auto industry, forcing the ouster of General Motors Corp’s chief executive, pushing Chrysler LLC toward a merger and threatening bankruptcy for both.
The steps, outlined by the White House autos panel headed by former investment banker Steve Rattner, marked a stunning reversal for management at both automakers and took aim at GM creditors who had bet that the administration would rescue the top US automaker.
Instead of granting GM’s request for up to a further $16 billion in loans, the administration pledged only to fund GM’s operations for the next 60 days while it develops a more sweeping restructuring plan under new leadership.
GM CEO Rick Wagoner, who had presided over the company’s rapid decline in the past five years and had run the automaker since 2000, was forced out effective on Monday at the request of Rattner. A majority of GM’s board will also be replaced.
GM President and chief operating officer Fritz Henderson, a Wagoner protege, was named as new CEO.
“On Friday, I was in Washington for a meeting with administration officials,” Wagoner said in a statement. “They requested that I ‘step aside´as CEO of GM, and so I have.”
The forced resignation came at a time when the Obama administration has come under fire for not blocking bonuses to executives at American International Group Inc..
It was only the second time that the US. government has forced the ouster of a CEO in a bailout since the financial crisis began last fall. Robert Willumstad lost his job at the helm of AIG in September in connection with the US government’s then-$85 billion rescue of the giant insurer.
Most analysts had expected the administration to take a softer line with GM and Chrysler after it had signaled its intent to protect jobs for the 160,000 US workers employed by the companies.
S&P 500 futures fell after the news, trading down 1.5% at 10:30am, while US Treasuries futures hit a session high.
Shares in Japanese automakers such as Honda Motor Co and Mazda Motor fell around 7% on concerns about the broader industry impact of the failure of one of the major U.S. producers.
“The fact that there’s still a chance of GM going bankrupt is shocking,” said Takashi Ushio, head of the investment strategy division at Marusan Securities in Japan.
Republican Thaddeus McCotter, a Detroit-area Republican, said the Obama administration had applied a double-standard in ousting Wagoner after letting bank executives stay on in their jobs.
“I want to know what the goal is for these companies,” he told Reuters. “We have families that are scared to death. In Michigan, with 12% unemployment, we’ve got to be worried.”
Chrysler ultimatun: Partner or die
Chrysler, which is controlled by Cerberus Capital Management, was given 30 days to complete an alliance with Italy’s Fiat SpA or face a cut-off of its government funding that could force its liquidation.
The autos panel rejected the claim by Cerberus that Chrysler could be viable on its own, citing its smaller size, weaker product line-up and declining US market share.
If Chrysler can complete a tie-up with Fiat and cost-saving deals with creditors and its major union, the Treasury would consider investing up to another $6 billion, officials said.
US officials said there had been progress in recent negotiations involving the task force. Fiat has agreed to take less than the 35% stake in Chrysler the two companies had first negotiated, the senior official said.
Meanwhile, Henderson, a key architect of GM’s now-rejected turnaround plan, was charged with working with US officials and advisers to develop a more aggressive restructuring.
“We believe our approach to GM is starting with a clean sheet of paper,” the senior official said.
GM bondholders, the official said, could have to take less than the 33-cent-on-the-dollar payout they have been offered and should abandon hope of seeing a government guarantee for their investment.
The Obama administration has also not ruled out a quick bankruptcy process for either GM or Chrysler, he said. Such a process, he said, could shed debt quickly. “Think of it as a quick rinse,” the senior official said.
Wagoner has been outspoken in his opposition to a Chapter 11 reorganization, saying it would drive away consumers and probably lead to GM’s liquidation.
GM had asked for more than $16 billion in new government loans, while Chrysler wanted $5 billion to ride out the weakest market for new cars in almost 30 years.
Obama last week cited mismanagement “over the years” for some of the auto industry’s severe financial problems, a barb aimed at Wagoner since his counterparts at Ford Motor Co, Alan Mulally, and Chrysler, Bob Nardelli, are relative newcomers brought in from outside the industry.
GM has lost about $82 billion since 2005 when its problems began to mount in the US market. GM stock has also lost about 95 percent of its value since Wagoner took over as CEO.
Wagoner inherited many of GM’s deeper problems but critics say he failed to move quickly enough, leaving the automaker vulnerable when auto sales tanked and credit dried up.
“GM lost its footing in the late 1970s and the board didn’t seem to notice for another 20 years. Rick made a lot of decisions, but they came too late,” said John Casesa, a managing partner at consulting firm Casesa Shapiro Group.
Wagoner was the second car executive to lose his job over the weekend. The board of France’s PSA Peugeot Citroen fired CEO Christian Streiff and replaced him with Philippe Varin, who will take up the position on 1 June.