GM’s Wagoner out at Obama’s request

UPDATED:

The Obama administration has determined that neither Chrysler LLC nor General Motors Corp. can survive without dramatic changes in their businesses, and given them only weeks to completely restructure on a fast schedule that could involve a quick “dip” into bankruptcy, senior administration officials said Sunday.

The restructuring began right away Sunday, the eve of Mr. Obama’s public layout of his plan for the U.S. auto industry, with the White House asking longtime GM Chief Executive Officer Rick Wagoner to step down and be replaced by Fritz Henderson, GM’s current chief operating officer.

While Mr. Obama’s team has judged that GM could become viable with major sacrifices, it decided that Chrysler cannot survive as a stand-alone company, a senior administration official said. The White House did not agree to give the two Detroit automakers the additional $21.6 billion in loans they were seeking, but it did say it would give them an unspecified amount of financing if they go through with the far-reaching reorganizations the White House is demanding.

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The two companies received a combined $17.4 billion in loans from the Treasury’s $700 billion bailout fund at the end of last year and were facing a deadline on Tuesday to make good on Bush administration reorganization demands.

But today, those demands would not go far enough to save the companies from bankruptcy, Obama officials said. In any case, neither company complied with the Bush demands, so they are now facing what appears to be even stricter terms from the Obama administration.

“Neither plan submitted by either company represents viability and, therefore, does not warrant the substantial additional investments they requested,” the administration official said, speaking on the condition of anonymity in detailing the companies’ new marching orders ahead of Mr. Obama’s formal announcement of the plan Monday.

The administration gave GM a further 60 days to come up with a reorganization plan, including drastic cuts in its $35 billion of debt as well as other major concessions from labor, dealers and suppliers, the senior administration official said. The administration wants GM to have a fresh start with new leadership to refashion the nation’s largest auto manufacturer into a completely new business, the senior administration official said.

Chrysler is being required to consummate its merger with Fiat SpA within 30 days as a condition of getting up to $6 billion in further loans. The administration determined that Chrysler would not survive as a stand-alone company, and if it does not find a partner, it will receive no further loans, most likely forcing the company into bankruptcy.

Because both companies need drastic reductions in their debts and other costs to stay in business and become profitable again, the administration is prepared to escort both companies through a kind of quick bankruptcy procedure that senior officials described as “surgical” and may take no longer than 30 days.

Under such a procedure, the Treasury would provide all the financing that would be necessary to make the bankruptcy restructuring successful and to relaunch the companies. GM has estimated that the government would have to provide as much as $100 billion in loans to keep it afloat during a bankruptcy reorganization.

The Treasury also will provide both GM and Chrysler whatever funding is necessary to get through the next one to two months until a final decision has been made on the fates of the firms. Administration officials declined to specify how much in interim financing the companies are likely to receive, but said they had enough funds left in the Treasury’s $700 billion bailout fund to cover any new loans.

During the next few months of uncertainty hanging over the industry, the Treasury also will provide guarantees on the two companies’ warranty service “during this time of uncertainty,” in a move designed to prevent car buyers from shying away from GM and Chrysler out of concern about whether they can stand behind their new-car warranties.

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