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Bankruptcy Looms For GM As Wagoner Is Fired

Chrysler Told Do A Deal With Fiat, Or It’s Curtains.
Obama Rejects Plans From GM, Chrysler As Unviable.

Former General Motors CEO and Chairman Rick Wagoner fought to the bitter end against bankruptcy, but that prospect is looming large after President Barack Obama’s ultimatum.

Obama said GM now has 60 days to come up with a viable plan, otherwise a court organised solution will be started and bankruptcy will loom.

Chrysler has 30 days to do a deal with Fiat. If that can be accomplished, Chrysler will get another loan of $6 billion.

If they fail, it will be bankruptcy for both companies, according to Global Insight analyst Aaron Bragman.

“Although their future paths are diverging, both firms (GM and Chrysler) now look likely to employ some form of strategic bankruptcy in order to wipe out their huge debt loads and restore their balance sheets,” Bragman said.

Wagoner has been sacrificed at the insistence of the Obama administration which found that GM and Chrysler’s viability sums didn’t add up.

Obama called for sacrifices in the board room, showrooms and the factory floor. We now await concessions from bondholders, and the United Auto Workers Union, which, according to some observers, are at the bottom of GM and Chrysler’s dilemma of having to compete with the likes of Toyota and Honda’s sharply lower cost base. The showrooms have been suffering as U.S. car sales stalled; only the strongest will survive. Obama made little reference to the UAW in his statement.

Tough decisions
GM has to make some tough decisions about the future of brands like Chevrolet, Cadillac, Buick, Pontiac, GMC, Saab, Hummer and Saturn.

Saturn and Hummer are under the most pressure; Saab has already been virtually cut loose, with just the promise of access to GM technology over the next 5 years.

The news will also add new urgency to the talks between GM Europe and the German government about how to save Opel. Thousands of workers at GM’s British Vauxhall subsidiary will also be wondering about their futures.

Obama also proposed a tax break for the rest of 2009 for people buying fuel-efficient cars, which needs Congressional approval, and a government backed guarantee to assure buyers it is safe to buy a GM or Chrysler vehicles.

Obama had some warm words for Wagoner.

“This 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,” Obama said.

President Fritz Henderson takes over as interim CEO.

Wagoner became CEO of GM in June 2000, and took over the chairmanship in May 2003. Wagoner presided over huge financial losses at GM, culminating in a $30.8 billion loss in 2008.

Wagoner’s record includes a successful push into the new China market, harnessing the bankrupt South Korean automaker Daewoo into a maker of big-selling small Chevrolets across Europe, and revitalising the luxury Cadillac brand in North America.

On the negative side, Wagoner’s reputation wasn’t enhanced by the sputtering alliance with Fiat which cost $2 billion to wind up. The idea of including Suzuki, Isuzu and Subaru into GM’s global plans didn’t work out. Wagoner resisted the plan to set up an alliance with Renault-Nissan.

GM and Chrysler have almost used up the combined $17.4 billion in federal aid they arranged in December. GM asked for $16.6 billion more and Chrysler sought another $5 billion.


Neil Winton – March 31, 2009

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