March 31, 2009 at 1:00 am

GM, Chrysler in crisis

Feds: Bankruptcy may be best option

President Barack Obama announces federal control of General Motors Corp. and Chrysler LLC on Monday with, from left: Budget Director Peter Orszag, Transportation Secretary Ray LaHood, Treasury Secretary Timothy Geithner and Ed Montgomery, who will oversee aid to affected auto communities. (Gerald Herbert / Associated Press)

Washington -- President Barack Obama asserted sweeping control over the fate of General Motors Corp. and Chrysler LLC on Monday, grimly warning they may be forced into a short-term bankruptcy in the coming months.

"We also cannot continue to excuse poor decisions," said Obama, flanked by a dozen key advisers at a White House event unveiling his plans. "And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars. These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."

Obama gave Chrysler working capital for 30 days to complete a tie-up with Fiat SpA -- and offered $6 billion in additional loans to make it work. If a deal isn't completed, Obama vowed to cut off Chrysler from additional government assistance.

His spokesman, Robert Gibbs, said the government could back a tie-up with another partner, if a Fiat deal doesn't gel.

GM, whose chairman and CEO, Rick Wagoner, was forced out by the White House, must complete a revised restructuring plan in the next 60 days -- as well as race to win concessions from bondholders and the United Auto Workers union.

The president's auto advisory team said a bankruptcy filing may be the "best chance of success" for both automakers, and some lawmakers and aides believe it is the leading option of the administration.

Scott Klein, mayor pro tem of Hamtramck, said Monday that auto task force adviser Ronald Bloom briefed municipal officials from several states Sunday night on details of the plan.

The officials are members of a lobbying group seeking additional aid for communities hard hit by auto job losses.

Klein said he was told the administration was considering using Section 363 of the federal bankruptcy code, which could allow for a fairly quick sale of the companies' assets. He described a significantly more pessimistic tone than that of administration officials in talking to the press.

"The president's people told us, at the end of the process, both GM and Chrysler are going into bankruptcy," Klein said.

"They made it sound like it was a done deal to us."

Obama said he is considering "using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger."

"What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold," Obama said.

"What I am not talking about is a process where a company is broken up, sold off, and no longer exists. And what I am not talking about is having a company stuck in court for years, unable to get out."

The administration has taken a much tougher line with automakers than with Wall Street banks that have received hundreds of billions of dollars in loans -- and are under no timetables to restructure or face liquidation.

U.S. Rep. Dale Kildee, D-Flint, blasted Obama's decision, saying Obama had been far more flexible with banks in trouble.

"The president has joined the chorus of caustic critics of the automotive industry while only giving faint praise to the high quality vehicles produced by the American manufacturers," he said. "This double standard is deeply offensive."

In addition to ousting Wagoner, Obama's auto team disclosed that a majority of the company's directors will be replaced. The administration plans to a take a bigger role in advising the company on a day-to-day basis, and has raised questions about brand strategies and other decisions.

In setting new deadlines and requirements, Obama rejected the viability plans the automakers filed in support of the $17.4 billion in government loans they have already received, and didn't approve their requests for another $21.6 billion.

"Let me be clear: the United States government has no interest in running GM. We have no intention of running GM," Obama said.

But Sen. Bob Corker, R-Tenn, called Wagoner's ouster "a sideshow to distract us from the fact that the administration has no progress to announce today."

"With sweeping new power, the White House will be deciding which plants will survive and which won't, so, in essence, this administration has decided they know better than our courts and our free market process how to deal with these companies," he said.

The president pledged to aid workers and communities in Michigan and elsewhere that almost certainly face the prospect of even tougher times to come.

And to reassure customers, the government will back the warranties of GM and Chrysler vehicles, in the event either automaker fails.

Obama also said he supports proposals pending in Congress for a "cash for clunkers" program that would provide incentives for new car purchases.

But on Capitol Hill, the automakers' clout in Congress has sharply diminished -- with Republicans opposed to a bailout and some Democrats angry about auto industry opposition to environmental regulations.

"We are now told these two companies are getting their last check from the taxpayers, and that if they don't finally come up with truly viable plans, then they'll be forced into bankruptcy. Unfortunately, we've heard this before from both this and the previous administrations," said Senate Minority Leader Mitch McConnell, R-Ky.