Buffalo News, March 31, 2009, Tuesday

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Buffalo News (New York)

March 31, 2009, Tuesday

CENTRAL EDITION

HEADLINE: Countdown begins for automakers; Obama, in ultimatum, warns GM, Chrysler of need for quick action

BYLINE: By Matt Glynn - NEWS BUSINESS REPORTER

BODY:

President Obama brought the hammer down Monday on General Motors and Chrysler, demanding more aggressive restructuring and rejecting the plans that the automakers submitted for more financial aid.

To underscore his point, his administration forced out GM's chief executive officer, Rick Wagoner, and gave GM an additional 60 days to work with the White House's automobile industry task force on plans to remake itself. Chrysler was given an additional 30 days to clear hurdles to a partnership with Italian automaker Fiat SpA.

"We cannot and must not, and we will not let our auto industry simply vanish," Obama said. "We cannot continue to excuse poor decisions. We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars."

Stocks tumbled on the developments; the Dow Jones industrial average lost 254 points to close at 7,522.

GM's fate resonates in Western New York, where the company has a 1,300-job engine plant in the Town of Tonawanda, and suppliers such as Delphi's Lockport plant depend heavily on GM's survival. Both GM and Chrysler also have strong local ties through auto dealerships.

Obama said GM will receive "adequate working capital" over the next 60 days as it works with the administration's team to assess whether GM has consolidated enough brands and its debt load so it could qualify for more aid. GM has already received $13.4 billion in government loans and was seeking $16.6 billion more, while Chrysler has received $4 billion and wanted $5 billion more.

The president also warned that if GM or Chrysler failed, a structured bankruptcy was a possibility for them to clear away debts and get back on their feet.

At the same time, Obama sought to quell fears that a bankruptcy filing would scare off car and truck buyers. He pledged that the government would now stand behind warranties issued by GM and Chrysler.

Wagoner's successor as CEO, Frederick A. "Fritz" Henderson, who was GM's president and chief operating officer, said there was a greater risk that GM will have to reorganize through bankruptcy because of greater demands from the government to get debt off its balance sheet.

Obama said GM and Chrysler will need more cooperation from the United Auto Workers, bondholders and other stakeholders to succeed in restructuring.

The president also created a new position -- director of recovery for auto communities and workers -- to help communities that suffer from auto industry plant closings and layoffs.

But in a conference call with reporters, senior Obama administration officials spelled out few details about the effort to help such communities.

They did not specify the criteria by which communities will qualify for the aid. But they did say the program -- to be headed by Edward B. Montgomery, a former senior official in the Labor Department in the Clinton administration -- will harness existing programs and resources to target them where they are needed most.

Montgomery's job will be "to cut through red tape and ensure that the full resources of our federal government are leveraged to assist the workers, communities and regions that rely on our auto industry," Obama said.

As part of the effort, one program typically reserved for workers who lost their jobs to foreign trade, Trade Adjustment Assistance, will be expanded to the auto industry.

The program provides laid-off workers job training, cash assistance and other benefits.

Obama said Wagoner's resignation reflected his administration's desire for "new vision and new direction" for GM and should not be seen as a condemnation of Wagoner, the CEO since June 2000.

Just two weeks ago, Wagoner told reporters that he considered the Tonawanda engine plant safe from closure amid the restructuring.

Without Wagoner in charge, and some of GM's board members being replaced, will the automaker's view of the Tonawanda plant change? Industry analysts said it was difficult to answer that question, especially with the government demanding a more extensive restructuring by GM.

"It makes things locally even murkier, if that's possible," said Patrick M. Heraty, a professor of business administration at Hilbert College. "I just think there's no way to know how this is all going to shake out."

The president is calling for GM to get leaner, Heraty said. "We know that GM, in an effort to optimize floor space, has been moving around products and operations," he said. "There is just no way of knowing how much further they have to go to satisfy the requirements of the government."

Arthur C. Wheaton, director of labor studies at Cornell University's School of Industrial and Labor Relations in Buffalo, said the assurances offered by Wagoner may no longer be valid since he is leaving as CEO. But determining which plants might be vulnerable -- and whether more of them are now at risk -- is still hard to do, he said.

Wheaton said some elements of Obama's announcement should be encouraging to the Tonawanda plant's work force: the government's pledge to stand behind GM warranties, and its plans to stimulate sales, such as by accelerating the purchase of government vehicles.

Paul Lacy, who analyzes powertrain operations for IHS Global Insight, said his organization isn't forecasting the Tonawanda plant as a target for closing. But he cited some concerns about its operations, such as production volumes that are far below its capacity of 1 million engines per year.

"They're going to be lucky if they make 500,000" engines this year, Lacy said.

Lacy said the Tonawanda plant's best long-term hopes lie in GM's reviving plans for a diesel engine line that was set to go into production this year. GM has delayed that program indefinitely but says the Tonawanda site is still its choice for making it.

Officials at GM's Tonawanda plant declined to comment on Monday's developments at the automaker. Meanwhile, the size of the Tonawanda plant's work force continues to shrink. As many as 128 hourly workers are taking buyouts. And GM is making cuts to its U.S. salaried work force that are expected to touch the River Road site. The exact number is not yet known.

As Wagoner exits, the 56-year-old executive may be eligible for pensions valued at $20.2 million as of the end of 2008, according to a regulatory filing. He is not eligible for severance pay.

At Chrysler, Chairman Robert L. Nardelli sought to assure customers, dealers, suppliers and employees that the automaker "will operate 'business as usual' over the next 30 days" while working closely with the government and Fiat to secure the support of stakeholders.

Senate Majority Leader Harry Reid, D-Nev., commended Obama for his "firm resolve" with GM and Chrysler, and said Congress also "will not give these companies a blank check."

However, Sen. Bob Corker, R-Tenn., who led a Republican revolt against auto bailouts late last year, was not impressed.

"This is a marked departure from the past, truly breathtaking," he said, "and should send a chill through all Americans who believe in free enterprise."

News Washington Bureau Chief Jerry Zremski, the Associated Press and Bloomberg News contributed to this report.

e-mail: mglynn@buffnews.com

GRAPHIC: Getty Images President Obama forces out GM's CEO, imposes 30- and 60-day timetables.

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