Re: Obama Speach
Posted by:
justme
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Date: March 30, 2009 08:20PM
Obama threatens US car industry with bankruptcyBarack Obama demands radical reform, and quickly, as he delays a decision about more cash for struggling carmakers
Andrew Clark in New York guardian.co.uk, Monday 30 March 2009 19.45 BST Article history
President Barack Obama raised the possibility that two of Detroit's teetering carmakers could be forced into bankruptcy today, blasting General Motors and Chrysler for failed leadership, unrealistic business plans and a slow rate of reform.
The White House earlier ordered the resignation of GM's veteran boss and instructed cash-strapped Chrysler to surrender its independence to Italy's Fiat.
Obama announced tax incentives for Americans to buy new cars, but delayed a decision on $21bn (£15bn) in extra bailout money from the public pocket, demanding far more radical reform proposals from the carmakers within weeks.
Flanked by his economic advisers in the foyer of the White House, the president delivered a cutting diagnosis of the motor industry's financial crisis, declaring that combined losses of $54bn last year were the result of "a failure of leadership from Washington to Detroit".
"We've seen problems papered over and tough choices kicked down the road, even as our foreign competitors outpaced us," said Obama in a televised address. "We, as a nation, cannot afford to shirk responsibility any longer."
A combination of fierce Asian competition, an evaporation of bank financing for car buyers and a collapse in consumer confidence has hammered Detroit's "big three" – GM, Ford and Chrysler. An estimated 400,000 jobs have been lost among motor manufacturers, dealers and suppliers over the last three years.
Obama said that motor manufacturing was "an emblem of America's spirit" and a "source of deep pride" on which the nation was built. He pledged: "We cannot, we must not and we will not let our auto industry simply vanish."
Urging the American public to rally round, he compared the havoc wreaked by the car industry's financial meltdown to a natural disaster in America's midwestern industrial heartland: "While the storm that has hit our auto towns is not a tornado or a hurricane, the damage is clear and we must likewise respond."
The harsh tone of the administration's message stunned both Wall Street and Detroit, sending the Dow Jones industrial average down by more than 250 points. It dismayed workers and politicians in Michigan who saw the looming prospect of even deeper job losses, factory closures and cuts to benefits.
GM's long-serving chief executive, Rick Wagoner, became the first victim of the hardline approach as he was forced to quit, ending his 31-year career at the company. He was replaced by GM's chief operating officer, Fritz Henderson, with a former Northrop Grumman boss, Kent Kresa, chairing a new board.
Thanking employees for their commitment, Wagoner issued a statement saying: "GM is a great company with a storied history. Ignore the doubters because I know it is also a company with a great future."
The treasury described GM's existing recovery plan as "not viable" and gave the firm, which owns brands such as Vauxhall, Chevrolet and Cadillac, just 60 days to produce a "credible" strategy which is likely to involve an increase to the 47,000 job losses already envisaged.
For Chrysler, however, the prognosis was worse. The taskforce concluded that the ailing company, which employs 38,000 people in the US but lost $8bn last year, had no future as a standalone business and must pursue a wide-ranging alliance with Fiat. The treasury said it would only support Chrysler for another 30 days. But if it can conclude a deal with Fiat, it will get a fresh $6bn loan from taxpayers' funds.
Stressing that the firm already has the framework of a deal with Fiat in place, Chrysler's chief executive, Robert Nardelli, reassured customers and suppliers that it would be "business as usual" over the next 30 days.
In his speech, Obama appeared to prepare the ground for bankruptcy, saying that a chapter 11 filing for either GM or Chrysler would "make it easier to clear away old debts weighing them down," and that it need not involve years of court procedures.
Bankruptcy would allow the courts to intervene in difficult talks with unions and creditors. GM's bondholders, who are owed $27bn, have proved particularly unwilling to exchange their debt for equity, believing that the company's shares are worth little.
Experts believe that protection from creditors is an increasingly likely option. Craig Fitzgerald, an automotive analyst at Plante & Moran in Michigan, said: "It's possible that this can't be done outside bankruptcy."
He said the administration's message to the companies' management was blunt: "You have not moved swiftly enough or boldly enough and you are part of the problem."
Between them, GM and Chrysler have already received $17.4bn of emergency loans from the federal government. But GM has asked for a further $16.6bn and Chrysler, which is owned by the private equity company Cerberus, wants another $5bn to restore stability.
In Detroit, there were murmurings of discontent at the treatment of Wagoner, a popular figure. Thaddeus McCotter, a Republican congressman for the Detroit area, asked why the bosses of Wall Street banks had been allowed to keep their jobs despite losing billions: "When will the Wall Street CEOs receiving funds summon the honour to resign? Will the White House ever bother to raise this issue? I doubt it."
Unions face the prospect of further belt-tightening in wages, healthcare and retirement benefits. On the shop floor, morale is at rock bottom. George Windau, a skilled mechanic of 32 years' standing who works at Chrysler's Jeep factory in Toledo, Ohio, told the Guardian: "People are frightened to death. They don't think it's fair. Everyone's searching for some explanation of how we got into this situation."
Windau was unimpressed by the president's call for more radical cutbacks: "His heart may be with us but he really doesn't understand that we've been giving concessions in every contract negotiation of the last 30 years. Each one has been worse than the one before."