Obama's ultimatum for GM, Chrysler

WASHINGTON - General Motors is on a short leash. Chrysler - even shorter.

President Obama asserted unprecedented government control over the auto industry yesterday and delivered an ultimatum to the two auto giants. He bluntly rejected their turnaround plans, demanded fresh concessions for long-term federal aid, and raised the possibility of quick bankruptcy for either manufacturer.

Obama announced the government would back new-car warranties issued by GM and Chrysler, an attempt to reassure consumers that their U.S.-made purchases would be protected even if the companies didn't survive.

And the administration forced longtime GM chief executive officer Rick Wagoner to step down.

"I am absolutely committed to working with Congress and the auto companies to meet one goal: The United States of America will lead the world in building the next generation of clean cars," Obama said. And yet, he added, "our auto industry is not moving in the right direction fast enough to succeed."

Obama announced a short-term infusion of cash for the companies and said it could be the last for one or both.

Chrysler, judged by the administration as too small to survive, got 30 days' worth of funds to complete a partnership with Fiat SpA, the Italian manufacturer, or some other automaker.

GM got assurances of 60 days' worth of federal financing to try to revise its turnaround plan under new management with heavy government participation. That would involve concessions from its union workers and bondholders. The administration engineered the ouster of Wagoner over the weekend.

Obama's announcement underscored the extent to which automakers have been added to the list of large corporations now operating under a level of government control that seemed unthinkable less than a year ago. Since last fall, the Bush and Obama administrations, often acting in concert with the Federal Reserve, have engineered the takeover of housing titans Fannie Mae and Freddie Mac, taken a large stake in several banks, and installed a new CEO at bailed-out insurer American International Group.

Under Fritz Henderson, named new CEO, General Motors issued a statement saying it hoped to avoid bankruptcy, but would "take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process."

Chrysler chairman Bob Nardelli sought to assure customers, dealers, suppliers and employees that the automaker "will operate 'business as usual' over the next 30 days," while working closely with the government and Fiat to secure the support of stakeholders.

Sergio Marchionne, CEO of Fiat, issued a statement calling the Obama administration's involvement "tough but fair, and we believe we will arrive at a result that will establish a credible future for this crucial industrial sector and that assigns the right priority to the repayment of U.S. taxpayers' funds."

Fiat executives have talked to administration officials about a proposal to acquire a 35 percent stake in Chrysler in exchange for small-car technology, transmissions, and other items that Chrysler has valued at $8 billion to $10 billion.

There was no immediate response from the United Auto Workers union. One worker, Don Thompson, 56, of Chesterfield Township in Michigan, said automakers were being punished because of public anger over the banking bailout. "They're using us," he said, "for the mistakes they've made in Washington."

Other workers claimed a double standard in how Washington dealt with Wagoner, as opposed to CEOs of bailed-out banks. "They're using him as a fall guy," said Frank Rowser, financial secretary for UAW Local 909.

When Wagoner leaves the automaker, he will take a financial package worth an estimated $23 million.

Ford Motor Co., the third member of the Big Three, has not requested federal bailout funds.

Obama said bankruptcy would be a way for either GM or Chrysler to "quickly clear away old debts that are weighing them down so they can get back on their feet" and stressed that either firm would remain open.

"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," he said.

Still, fears about the industry's future sent stocks plummeting. The Dow Jones industrial average lost about 254 points. GM plunged 92 cents, or 25.4 percent, to $2.70. Chrysler is not publicly traded.

Obama's remarks were prompted by the expiration of a bailout approved by the Bush administration last winter, with $17 billion in federal funds to help GM and Chrysler survive.

The Obama administration issued papers detailing the prospects for survival of both GM and Chrysler, credited them with making difficult choices, yet also stressing the difficulties that remain.