Obama: 'Failure of Leadership' Has Brought About Detroit Crisis

President Asks GM's Wagoner to Resign, Tells Chrysler to Merge Before More Money Doled Out

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DETROIT (AdAge.com) -- General Motors Corp. and Chrysler are coming to the end of their road. The Obama administration has concluded that the automakers' recovery plans are not viable, and to underscore the point, it asked for GM CEO Rick Wagoner's head. Today President Barack Obama raised the specter of bankruptcy if new deadlines aren't met.

President Obama, accompanied by Treasury Secretary Timothy Geithner, speaks on the auto industry in the Grand Foyer of the White House.
President Obama, accompanied by Treasury Secretary Timothy Geithner, speaks on the auto industry in the Grand Foyer of the White House. Credit: AP
"While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plans they develop," the president is scheduled to say at a news conference today. "That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger."

He laid much of the blame squarely in the laps of senior management at the troubled automakers. "It is a failure of leadership -- from Washington to Detroit -- that led our auto companies to this point," the president said in his remarks. "Year after year, decade after decade, we have seen problems papered over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we have reached the end of that road. And we, as a nation, cannot afford to shirk responsibility any longer. Now is the time to confront our problems head-on and do what's necessary to solve them."

The administration will give GM funding for 60 days while it works to come up with an alternate plan that's acceptable. As for Chrysler, the administration has determined it needs a "partner to be viable," according to the president's prepared remarks. "That is why we will give Chrysler and Fiat 30 days to overcome these hurdles and reach a final agreement -- and we will provide Chrysler with adequate capital to continue operating during that time. If they are able to come to a sound agreement that protects American taxpayers, we will consider lending up to $6 billion to help their plan succeed. But if they and their stakeholders are unable to reach such an agreement, and in the absence of any other viable partnership, we will not be able to justify investing additional tax dollars to keep Chrysler in business."

The new "car czar" overseeing the effort to save Detroit will be Edward Montgomery, a former deputy labor secretary.

But the biggest indicator that Mr. Obama means business is the government asking Mr. Wagoner to step down. "To some degree, Wagoner's departure is symbolic. But symbolism matters -- especially in Washington," wrote Automotive News Editor Dave Sedgwick in the publication's online edition today. "The Obama administration is sending a message that it's no longer business as usual. If Congress and the public don't believe it, GM won't survive."

Succeeding Mr. Wagoner will be GM's chief operating officer, Fritz Henderson, who has taken a major communications role with the automaker in recent months. In a prepared statement, Mr. Wagoner called Mr Henderson the "ideal person to lead the company through the completion of our restructuring efforts."

In his remarks, Mr. Obama said the move is "not meant as a condemnation of Mr. Wagoner, who has devoted his life to this company; rather, it's a recognition that it will take a new vision and new direction to create the GM of the future."

GM reported a global net loss of $30.9 billion for 2008, including a net loss of $9.6 billion in the fourth quarter. Its recovery plan called for slashing $800 million from its marketing budget this year and phase out or sell Hummer, Saab and Saturn. In February, Chrysler Vice Chairman Jim Press said that on top of four car brands it already planned to discontinue -- the Dodge Magnum and Chrysler models Pacifica, Crossfire and PT Cruiser convertible -- the automaker would eliminate three more models: the Dodge Durango and its sibling Chrysler Aspen, as well as the Chrysler PT Cruiser. But that still may not be enough.

In recent months, Ford Motor Co., which has not taken any bailout money, has been stealing share from both GM and Chrysler.

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