Monday, March 30, 2009

OBAMA Takes over GENERAL MOTORS - The Bail-out / Buy out

With Barack Obama in the driver’s seat, the U.S. auto industry is set to veer on a new course away from the production of gas guzzlers to smaller, more fuel efficient cars.

Barack Obama, the U.S. president, is demanding General Motors Corp. and Chrysler accelerate their production of “green” vehicles as part of conditions unveiled Monday that the ailing automakers need to meet before they receive billions more in bailout money from U.S. taxpayers.

The requirement is part of his administration’s broader effort to end America’s addiction to foreign oil and improve environmental standards. Industry analysts said Monday that includes an ambitious plan to dramatically reshape the U.S. auto industry and give government an unprecedented role in its future.

The pit crew installed to help oversee the shake-up includes Steven Rattner, a Wall Street financier who earlier this year was named to lead the administration’s auto task force; Edward Montgomery, who will fight for autoworkers and the communities that have been hard hit by the sector’s slump; and Fritz Henderson, who was named chief executive of General Motors after his boss Rick Wagoner stepped down over the weekend at the government’s request.

At a speech at the White House Monday explaining the latest ultimatums GM and Chrysler face to get more bailout funds – or go bankrupt — Barack Obama said he believes the U.S. auto industry can once more out-compete the world.

Revamping U.S. automakers can lead to “a 21st century auto industry that is creating new jobs, unleashing new prosperity, and manufacturing the fuel-efficient cars and trucks that will carry us toward an energy independent future,” Barack Obama said. “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.”

It is unclear at this stage whether the restructuring of GM and Chrysler can occur without either or both companies winding up in bankruptcy court first.

Worries that GM could be headed in that direction contributed to a stock-market sell-off Monday. The Dow Jones Industrial Average sank more than 254 points to 7,522.02. Ongoing worries about the health of U.S. banks also helped drag stocks down. Shares of GM plunged 25%.

The company’s much smaller rival, Chrysler, which is privately held, was given until the end of April to complete a deal with Fiat SpA.

Barack Obama administration showed it is calling the shots at GM by demanding Mr. Wagoner’s exit.

Industry analysts considered the ouster a symbolic move to appease an angry American public upset over the billions in taxpayer dollars that have gone to bail out GM and Chrysler.

Fritz Henderson, GM’s chief operating officer and Mr. Wagoner’s right-hand man, stepped in as interim CEO.

The administration is giving him 60 days to boost the restructuring efforts or the company will face bankruptcy.

“We believe it’s going to be tough to get that accomplished,” said George Magliano, director of auto industry research at IHS Global Insight. “The government has raised the bar so high. I suspect what’s likely to happen is that current management at General Motors will be eliminated and the government will install people that are favorably disposed to the direction it wants to take General Motors.”

To further its green effort, the Barack Obama administration hopes to persuade U.S. Congress to use some of the U.S. government’s US$787-billion stimulus program to fund tax rebates for consumers who turn in their old, less fuel-efficient cars for more environmentally friendly models.

“Obama is going to restructure GM to be a producer of clean, fuel efficient vehicles and make laws and regulations so that automakers in the American market will have to sell them,” said Mr. Magliano. “It’s a way to get American consumers to drive them that doesn’t require the thing that’s political suicide, which is to raise gas prices.”

Some industry analysts questioned the move to emphasize the production of such vehicles when gas prices are falling and consumers don’t feel like they can afford new cars, particularly the usually pricier green models.

“Buying those kinds of cars is not really what’s on people’s minds right now,” said Jessica Caldwell, an industry analyst with

Edmunds’ Editor Michelle Krebs, added in a note: “The market for fuel efficient vehicles rises and falls with gas prices. Until there is a consistent and compelling reason for consumers to buy hybrids, such as stabilized gas prices, automakers cannot realistically turn over their product lines to that more expensive, less profitable product that has only achieved 2% market share after all these years in production.”

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