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Obama to unveil plans to salvage US auto sector

Obama to unveil plans to salvage US auto sector
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First Published: Sun, Mar 29 2009. 10 24 AM IST
Updated: Sun, Mar 29 2009. 10 24 AM IST
Washington: With the US auto industry skidding toward an abyss, President Barack Obama unveils his plan Monday for the sector that could entail more federal aid to help manufacturers weather the economic storm.
Obama’s auto task force has been working to solve the woes of US automakers which have been pushed to the brink of bankruptcy in the economic recession amid a global downturn in car sales.
Two of the firms, GM and Chrysler, have asked for another $21.6 billion in US aid on top of the 17.4 billion in emergency loans approved in December as they struggle to survive.
Ford, the other member of Detroit’s Big Three, has said it has enough cash to survive the downturn without government aid.
GM and Chrysler must come up with viability plans to show the path to profitability, requiring deeper job cuts, new agreements with unions to slash costs and acceptance by bondholders of a plan to cut the automakers’ debt.
Obama task force lead advisor Steven Rattner told the Detroit Free Press this month that “bankruptcy is not our goal,” but that court restructuring may be needed if there is no alternative.
Obama, speaking at a town hall meeting Thursday, repeated his pledge to stave off collapse.
“We need to preserve a US auto industry,” he said.
“I think it’s important not just symbolically; it’s important because ... the auto industry is a huge employer.”
A collapse would affect “not just the people who work for GM or Ford or Chrysler, but all the suppliers (and lead to) all the ripple effects that are created as a consequence of (a potential failure) our auto industry,” he said.
Obama said the issue is complex, noting that “my job is also to protect taxpayers,” adding: “There’s been a lot of mismanagement of the auto industry over the last several years.”
“I think it is appropriate for us to say, are there ways that we can provide help for the US auto industry to get through this very difficult time, but the price is that you’ve got to finally restructure to deal with these long-standing problems.”
“And that means that everybody’s going to have to give a little bit,” he added.
Earlier this month, the US Treasury announced aid of up to $5 billion for auto supply firms hurt by a credit squeeze and the collapse in vehicle sales.
The program is aimed at US-based suppliers, allowing them to sell their receivables into the program at a modest discount, giving them access to needed liquidity.
The aid package came after warnings that dozens of automotive suppliers could lose their credit lines or end up in default because of problems with auto manufacturers, notably General Motors.
US auto sales extended their downward spiral in February, falling 41 percent from a year ago to the lowest rate since December 1981 amid a deepening economic crisis. And some analysts say March sales could be equally bleak.
Automakers are pledging to increase their commitment to building greener cars in return for extra government loans that will help the automakers avert collapse.
“Taxpayers should expect a return on loans to help us a bridge the current, difficult market conditions. Additional support will help us accelerate our efforts to reinvent GM and the cars and trucks we build,” GM spokesman Tom Wilkinson said in a statement.
“We want to play a significant role in revitalizing America’s economy and re-establishing its technology leadership.”
An expanded requirement for carmakers to developing new, green technology is expected to be one of the requirements the Obama administration will impose on carmakers in return for additional loans, industry observers said.
Analysts say the administration is basically pursuing a two-track approach by offering them short-term help through the bridge loans while offering longer-term financing for new research and development.
GM officials also said privately that they are close to announcing buyers for the company’s Hummer brand and for a spin-off of its Saturn nameplate.
The announcement on Hummer could come next week, while GM has told its dealers that they should have a plan for the future of the brand ready by mid-April.
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First Published: Sun, Mar 29 2009. 10 24 AM IST
More Topics: Obama | Finance | US | Auto sector | GM |