D-Day for US car industry

America was poised for a massive shake-up of its car industry today after the White House said neither General Motors nor Chrysler’s plans for more bailout money were acceptable.

President Barack Obama and his top advisers do not believe either company, who together employ about 140,000 workers in the US, is viable and that taxpayers will not spend untold billions more to keep them open forever.

In a last-ditch effort the administration gave each company a brief deadline to try one last time to convince them it is worth saving, said senior administration officials.

In an interview with CBS’ “Face the Nation” yesterday Mr Obama said the companies must do more to receive additional financial aid from the government.

“We think we can have a successful US auto industry. But it’s got to be one that’s realistically designed to weather this storm and to emerge – at the other end – much more lean, mean and competitive than it currently is,” he said.

Frustrated administration officials said Chrysler cannot function as an independent company under its current plan. They have given Chrysler a 30-day window to complete a proposed partnership with Italy’s Fiat, and will offer up to $6bn (€4.55bn) to the companies if they can negotiate a deal before time runs out.

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.

A Chrysler spokeswoman said the company wants to work with the Treasury and Mr Obama’s auto task force but declined to comment on the White House’s plans.

“With the administration’s announcement on the restructuring of the automotive industry imminent, it would be inappropriate to comment on speculation,” the company said.

For GM, the administration offered 60 days of operating money to restructure. A frantic top-to-bottom effort began yesterday after chief executive Rick Wagoner resigned under pressure from the White House.

Mr Obama’s advisers saw public outrage come to an ugly head in recent weeks, as populist anger escalated over bonuses paid to AIG executives. They realised Americans were frustrated with the economy and its business leaders; they also said they would not invest one dollar more than was necessary to keep the companies alive and would walk away if it looked impossible.

Officials said GM had not made good on promises made in exchange for $13.4bn (€10.17bn) in government loans.

Administration officials still believe GM’s chances are good, given its global brand and its research potential. They are confident GM can put together a plan that will keep production lines moving in the coming years. They planned to send a team to Detroit to help with that restructuring.

Chrysler, meanwhile, has survived on $4bn (€3.03bn) in federal aid during this economic downturn and the worst decline in car sales in 27 years.

In progress reports sent to the government in February, GM asked for $16.6bn (€12.6bn) more and Chrysler wanted $5bn (€3.79bn) more. The White House baulked and instead started a countdown clock.

People familiar with the plan said officials will demand further sacrifices from the companies and bankruptcy would still be possible if they failed to restructure.

Administration officials said they hoped large-scale bankruptcy could be avoided, especially if it might be stretched over many years. Any efforts to use the bankruptcy courts would have to be targeted and aggressive and must not prolong a restructuring process, they said.