Obama puts car giants on notice

US President Barack Obama declared yesterday that General Motors and Chrysler restructuring plans were too little too late, leaving him no choice but to push out GM's chief executive and set a one-month deadline for Chrysler to merge with Italy's Fiat.

Obama, who was stepping into the American industrial sector with a force not seen in generations, also raised the possibility of a controlled bankruptcy to help either or both companies to "restructure quickly and emerge stronger" - uttering the term that industry and union officials have warned repeatedly could lead to the collapse of an entire domestic industry.

But Obama sought to soften the blow.

"What I am not talking about is a process where a company is broken up, sold off, and no longer exists," Obama said. "And what I am not talking about is having a company stuck in court for years, unable to get out."

As the US economic recession deepened and the auto giants sought more taxpayer money, the president was performing radical surgery.

Underscoring the extent to which the government is now dictating terms to two of the country's iconic corporations - forcing the departure of Rick Wagoner as CEO of General Motors - Obama bluntly warned the administration may pull the plug on either or both companies.

Dating to his days as a presidential candidate, Obama had been openly critical of the US auto industry, voicing deep dissatisfaction with the way it has done business.

Declaring he would no longer "excuse poor decisions" as the companies tried to survive on "an unending flow of tax dollars", Obama said: "These companies and this industry must ultimately stand on their own, not as wards of the state."

The president acknowledged the pain being felt by Americans caught in the dizzying decline of the industry and blamed "a failure of leadership from Washington to Detroit that led our auto companies to this point".

However, Obama said his administration would try to encourage Americans to buy more US-made cars by offering some tax incentives to new buyers.

Obama stepped in after deciding General Motors and Chrysler had submitted unacceptable plans in return for billions more dollars they said was needed to stay in business. The struggling companies were already being kept afloat with huge emergency government rescue loans. GM had received $13.4 billion; Chrysler $4 billion.

On Wall Street, fears of an automaker bankruptcy pushed US stocks down more than 3.5 percent.

The president said the restructuring plans submitted by the companies, which employ about 140,000 workers in the United States, did not merit continued taxpayer help and needed to do much more. Tens of thousands of more jobs could be in jeopardy in associated industries and businesses.

Ford Motor, the third of the industry's Big Three, has taken no government money and is not affected.

In return for the forced resignation of CEO Rick Wagoner and a shake-up in the auto giant's board, the administration will provide GM 60 days of operating money to work out an acceptable restructuring in the face of an inevitable bankruptcy should it fail.

As a sweetener, Chrysler could get up to $6 billion if it completes the alliance with Fiat within 30 days. Chrysler and Fiat have been in talks, but Obama forced the issue. If a Chrysler-Fiat union cannot be completed, Washington plans to walk away, leaving Chrysler destined for a complete sell-off. No other money is available.

At GM, president and chief operating officer Fritz Henderson takes over as CEO, the company said in a statement released early yesterday. Board member Kent Kresa, the former chairman and CEO of defense contractor Northrop Grumman Corp, was named interim chairman of the GM board.

New directors will make up the majority of GM's board, the statement said. The directors who will be replaced have not yet been named.

Fiat executives have talked to the White House auto task force 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, according to administration officials who spoke on condition of anonymity because they were not authorized to make details public.

The administration planned to send a team to Detroit to help with the restructuring during the next 60 days. With Wagoner's departure, new management would be decided by GM's board of directors in consultation with the government. An official said a majority of the GM board was expected to step down.

Both companies are trying to reduce their debt by two-thirds and persuade the United Auto Workers union to accept several cost-cutting measures.