April 15, 2009 at 1:00 am

Obama: GM, Chrysler must make 'unpopular choices'

President Barack Obama says Tuesday the government is taking steps to spur demand for American cars. (Alex Wong / Getty Images)

Washington -- President Barack Obama said Tuesday it is his "fervent hope" that General Motors Corp. and Chrysler LLC will meet government-imposed deadlines to restructure and survive, warning the effort "will involve difficult and sometimes unpopular choices."

Obama's comments come as GM and Chrysler race the clock to try to win concessions from the United Auto Workers and their debt holders as they face a growing prospect of bankruptcy.

"It is our fervent hope that in the coming weeks, Chrysler will find a viable business partner and that GM will develop a business plan that will put it on a path to profitability without endless support from the American taxpayer," Obama said in a speech at Georgetown University.

GM and Chrysler are running on taxpayer loans approved by the Bush White House and expanded by the Obama administration. Obama on Tuesday defended his decision to give the two automakers more time to resolve their problems, despite harsh criticism from Republicans who said the companies had made no progress.

"We owed that not to the executives whose bad bets contributed to the weakening of their companies, but to the hundreds of thousands of workers whose livelihoods hang in the balance. Entire towns, entire communities, entire states are profoundly impacted by what happens in the auto industry," Obama said.

"In the meantime, we are taking steps to spur demand for American cars and provide relief to autoworkers and their communities. And we will continue to reaffirm this nation's commitment to a 21st century American auto industry that creates new jobs and builds the fuel-efficient cars and trucks that will carry us toward a clean energy future."

The government gave Chrysler until the end of this month to complete a tie-up with Italian automaker Fiat SpA; it gave GM until the end of May to complete a tougher restructuring and dramatically shrink its $70 billion in debt. Both companies need to reach an accord with the United Auto Workers, bondholders and other constituents before either goal can be achieved.

Some on Obama's auto task force have suggested bankruptcy is still the best option for both GM and Chrysler, but industry insiders are not so sure.

"I don't see any scenario where all the constituents involved are better off in a bankruptcy," said restructuring expert Van Conway of Conway MacKenzie Inc., a Birmingham-based consulting firm. He said the government's suggestion that additional financial aid would be forthcoming if deals could be reached should be incentive enough.

"That's a heck of a lever to get a deal done."

Craig Ruff, a political analyst at Public Sector Consultants, a Lansing-based good government think tank, said Obama is responding to "off with their heads populism" by getting rid of GM Chairman and CEO Rick Wagoner and half of the company's directors.

"He offers this hazy view that he's not going to allow the domestic auto industry to fail," Ruff said.

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