President Obama and his top economic advisors have determined that neither General Motors nor Chrysler have put forth acceptable plans to receive more bailout funds, which could effectively shut down the two auto giants.
On Sunday, the president appeared on “Face the Nation,” and said the automakers had to do more to receive additional government money.
GM and Chrysler have burned through an aggregate $17.4 billion in federal bailout aid they have received. GM has asked for up to $16.6 billion more, and Chrysler has requested another $5 billion.
The administration has assessed that Chrysler cannot continue to function as an independent company under its current plan and has given the company one month to engineer a partnership with Italian automaker Fiat SpA and, if successful, would earmark some $6 billion in bailout monies. If not, the administration said it would leave the company to fail on its own.
On Sunday, GM chief executive Rick Wagoner resigned under pressure and was succeeded by long-time GM exec Fritz Henderson. Board member Kent Kresa will become interim chairman.
Obama gave GM 60 days to create a more viable restructuring plan and Chrysler 30 days. He said in a speech Monday that both companies might need to go through a bankruptcy restructuring, but he emphasized that the bankruptcy phase would be temporary and would not disrupt the ability for consumers to get their cars serviced.
"Just in case there are still nagging doubts, let me say it as plainly as I can – if you buy a car from Chrysler or General Motors, you will be able to get your car serviced and repaired, just like always," said Obama. "Your warranty will be safe. In fact, it will be safer than it’s ever been. Because starting today, the United States government will stand behind your warranty."
To encourage more auto sales, Obama said that the federal government would be making more purchases of newer fuel-efficient cars for its fleet, and the Internal Revenue Service would promote a new tax credit for car sales that was included in the American Recovery and Reinvestment Act.
"The IRS is today launching a campaign to alert consumers of a new tax benefit for auto purchases made between February 16 and the end of this year – if you buy a car anytime this year, you may be able to deduct the cost of any sales and excise taxes," said Obama. "This provision could save families hundreds of dollars and lead to as many as 100,000 new car sales. "
Obama also pledged to help auto workers and communities affected by the restructuring of the auto companies. He named Edward Montgomery , a former Deputy Labor Secretary, to "cut through the red tape" as the new Director of Recovery for Auto Communities and Workers.
"When a community is struck by a natural disaster, the nation responds to put it back on its feet," said Obama. "While the storm that’s hit our auto towns is not a tornado or a hurricane, the damage is clear, and we must respond."
