Posted by: David Kiley on March 26, 2009
President Obama said Thursday that he will have a statement regarding how much more financial support the U.S. government will extend to the auto industry—chiefly General Motors, Chrysler and the auto supplier industry—by Tuesday before he leaves on a European trip.
The White House had set a March 31 deadline for his administration to assess restructuring plans set forth by General Motors and Chrysler, which have received billions in tax-payer loans and are asking for more.
Though members of the White House task force have indicated in recent days that their work will not likely be finished by the deadline, Obama said today in an online town-hall meeting that he will have something to say about the ailing auto industry and what he intends to do to possibly keep the two companies from going into bankruptcy.
“I’m going to be making some announcements over the next several days about the auto industry,” Obama told a “virtual” town hall meeting from the White House.
“What we’re expecting is that the automakers are going to be working with us to restructure. We will provide them some help,” he said in a session broadcast on the Internet where he answered questions from the public on the economy.
What isn’t known yet is how definitive his announcement and plans will be. The companies have put forth extensive restructuring plans that include, for example, GM selling or closing its Saturn, Hummer and Saab brands. But GM, with much larger debt problems than Chrysler, has been at an impasse with the United Auto Workers and bond holders over a massive debt restructuring the White House is looking for as a condition of lending more money to the automaker.
The union has not yet accepted a deal to take GM stock in place of more than $10 billion it is owed by GM to its healthcare trust fund. And bondholders have not yet accepted an offer to take 30 cents on the dollar for the billions in debt they hold.
Members of the White House task force have said in interviews that forcing GM and Chrysler into Chapter 11 bankruptcy is not a desirable option. The group—made up of labor, auto industry and financial experts—have been exploring more creative options to help the companies resize and preserve manufacturing jobs, while minimizing the exposure of the taxpayer to loans that won’t get paid back if the companies are forced into liquidation.
In the virtual town hall meeting, Obama said additional government aid for the automakers is “not popular.” “If they’re not willing to make the changes and the restructurings that are necessary, then I’m not willing to have taxpayer money chase after bad money,” he said.
GM and Chrysler received $17.4 billion in taxpayer assistance in December after saying they could not survive without it. They are aksing for $22 billion more. Auto suppliers, meantime, have gotten $5 billion in Federal guarantees to keep hundreds of companies from having to file Chapter 11 or liquidate. Ford Motor Co. has not sought a bailout loan.
The U.S. auto industry was already undergoing extensive restructuring last year. And the automakers and suppliers were in a fragile financial state. But the precipitous drop in auto sales since last summer has forced the companies into dire financial straits. Sales in March are running about 40% below the same period a year ago, continuing a trend that began in September.
Meantime, the White House also said it will announce on Friday a combined car and light truck fuel economy standard for the 2011 model year of 27.3 miles per gallon, a first step in a much broader re-working of the federal fuel economy rules that will continue later this year.
The administration is required to set the standard before the end of March under the 2007 energy law. President Obama has ordered federal officials to redo proposed standards for model years 2012 to 2016 to comply with plans for greater restrictions on global warming gases across industries.
The auto industry is also going to have to cope with the likelihood that the U.S. Environmental Protection Agency will allow California and other states to set their own fuel economy/greenhouse gas standards in the next few months.
The 2011 standard is an increase of 2 m.p.g. over current standards. New cars will need to meet a 30.2 m.p.g. standard, while light trucks, including sport utility vehicles, must hit 24.1 m.p.g. There is no problem meeting those standards for the automakers. But as an industry, Detroit automakers as well as Asian and European companies are fighting even stiffer fuel economy standards expected to be enforced by 2015.
European cars are far more fuel efficient than the U.S. fleet because consumers are subject to stiff gas taxes that creates a natural market demand for smaller, more fuel efficient vehicles and engines. But U.S. politicians say they if they voted for similar taxes, they would be voted out of office.