GWEN IFILL: Our lead story: President Obama imposed the most far-reaching controls ever on the auto industry today. He announced tough new terms for General Motors and Chrysler and a shakeup at the very top of G.M.
It also shook up Wall Street. The Dow Jones Industrial Average lost 254 points to close at 7,522 on fears the two companies wouldn’t survive. The Nasdaq index lost 43 points to finish at 1,501.
NewsHour correspondent Kwame Holman reports.
KWAME HOLMAN: The President’s message to G.M. and Chrysler was clear: His auto task force has concluded companies’ restructuring plans do not warrant further long-term assistance, at least not yet.
U.S. PRESIDENT BARACK OBAMA: And so today I’m announcing that my administration will offer G.M. and Chrysler a limited additional period of time to work with creditors, unions, and other stakeholders to fundamentally restructure in a way that would justify an investment of additional taxpayer dollars. During this period, they must produce plans that would give the American people confidence in their long-term prospects for success.
KWAME HOLMAN: Between them, the two automakers have received $17 billion in federal loans and want another $22 billion. But Mr. Obama said the industry cannot survive on endless federal help. He raised the prospect of controlled bankruptcy.
BARACK OBAMA: I know that when people hear the word “bankruptcy,” it can be unsettling, so let me explain exactly what I mean. What I’m talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so that they can get back on their feet and onto a path to success, a tool that we can use, even as workers staying on the job, building cars that are being sold. What I’m not talking about is a process where a company is simply broken up, sold off, and no longer exists.
KWAME HOLMAN: Instead, Chrysler now will have 30 days to reach an agreement with Italian automaker Fiat if it wants another $6 billion in federal loans.
BARACK OBAMA: It’s with deep reluctance, but also a clear-eyed recognition of the facts that we’ve determined, after careful review, that Chrysler needs a partner to remain viable.
General Motors CEO ousted
KWAME HOLMAN: Later, Chrysler announced it has agreed on a framework for a global partnership with Fiat. In a statement, Chrysler CEO Robert Nardelli said, "Chrysler has consistently said that the alliance with Fiat enhances its business model that expands its global competitiveness. We appreciate the willingness of the task force to consult closely with us in order to achieve this significant step."
At G.M., a clock now is ticking on a 60-day timetable. The president said the government will offer the company "adequate working capital" for that long.
BARACK OBAMA: During this time, my team will be working closely with G.M. to produce a better business plan. Let me be clear: The United States government has no interest in running G.M. We have no intention of running G.M. What we are interested in is giving G.M. an opportunity to finally make those much-needed changes that will let them emerge from this crisis a stronger and more competitive company.
KWAME HOLMAN: G.M. will be moving forward without Chief Executive Rick Wagoner, who was forced out. He won't receive severance pay, but he does qualify for a pension of $23 million.
Michigan's governor, Jennifer Granholm, told NBC this morning that Wagoner "clearly is a sacrificial lamb" who stepped aside for the good of the company. He'll be replaced as CEO by Fritz Henderson, G.M.'s president, who'd widely been considered the heir apparent.
In a statement today, the company accepted the changes, but said again it wants to avoid bankruptcy, saying, "Our strong preference is to complete this restructuring out of court. However, G.M. will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process."
Whatever form the restructuring takes, the president acknowledged it could mean more jobs lost.
BARACK OBAMA: These efforts, as essential as they are, are not going to make everything better overnight. There are jobs that won't be saved. There are plants that may not reopen. There's little I can say that can subdue the anger or ease the frustration of all whose livelihoods hang in the balance because of failures that weren't theirs.
KWAME HOLMAN: The industry already has lost 400,000 jobs in the last year, and some auto workers outside Detroit today said they're being made scapegoats.
AUTO WORKER: No, I don't think it's fair, especially when the banks and the -- or politicians have got it in this situation to begin with.
KWAME HOLMAN: In Congress, Senate Republican Leader Mitch McConnell complained the government should have gotten tougher with the auto companies last year. Key Democrats, such as Michigan Sen. Carl Levin, generally supported the plan.
SEN. CARL LEVIN, D-Mich.: There's obviously going to be more pain. There was a very personal pain today for the CEO of General Motors. But the president made a decision that he's going to start with a clean sheet, he's going to have a clean break.
KWAME HOLMAN: Mr. Obama also is hoping to reassure the auto-buying public. He's announced the government will back the warranties for new Chrysler and G.M. vehicles.
New business plans fall short
GWEN IFILL: Jeffrey Brown has more about new demands and deadlines for the two U.S. automakers.
JEFFREY BROWN: And for that, I'm joined by a member of the president's auto task force, Austan Goolsbee. He also serves as chief economist for the administration's Economic Recovery Advisory Board and joins us from the White House.
Mr. Goolsbee, G.M. and Chrysler had presented new business plans to your task force. How exactly did they fall short?
AUSTAN GOOLSBEE, White House adviser: Well, if you look, the two cases are different. G.M. and Chrysler are very different companies, and so their plans were each of them inadequate but in slightly different ways.
In the G.M. plan and in the Chrysler plan, the underlying problem is that the assumptions required to make them viable businesses we simply didn't feel were warranted and that they needed to be more aggressive and take more dramatic steps to get themselves into a position where they could fly on their own wings, as it were, because, as the president said, we're not in a position where we have the money to keep companies as wards of the state.
JEFFREY BROWN: But what kind of steps would those be? In the case of G.M. where they have 60 days now to take some dramatic actions, and the president said they must fundamentally restructure in a way that would justify an investment of additional tax dollars, what exactly does that mean?
AUSTAN GOOLSBEE: Well, it means, as he said in his remarks, the president did, that all of the stakeholders have got to put more skin into the game. And that means the bondholders, the workers, the dealers, the suppliers that across board they've got to make a competitive company.
If you go through their plan now, they have taken steps -- and the president singled out G.M. that, in recent years and months, they have made progress on a number of dimensions, but they have to do more. What they have outlined there is not a viable enterprise going forward yet and they've got to get it to be that at that point.
JEFFREY BROWN: Well, does the more-involved things like more concessions from the unions, the workers, is there reason for you to be optimistic that these things would happen over the next 60 days if they haven't happened in the negotiations up to this point?
AUSTAN GOOLSBEE: Yes. I do think there is some optimism on that front. The president outlined that he's optimistic that they will be able to come up with a viable business plan, that they made progress this first time, but they need to do more.
And if you start looking at the bondholders, I think there has been an element, especially on the part of the bondholders, of feeling like, well, ultimately the government will just keep bailing us out, so we don't actually have to bite the bullet and make these sacrifices. And the president made clear that's not going to be the case.
Controlled bankruptcy option
JEFFREY BROWN: Now, if it gets to that, the language today by the president about a potential bankruptcy was certainly stronger and more direct than in the past. How exactly would such a -- it's being called a controlled bankruptcy. How would that work?
AUSTAN GOOLSBEE: Well, I'm not a financial expert on restructuring, but the key element is that, within bankruptcy, there are liquidations and there are restructurings. And the president made totally clear that what he's talking about is finding a way to fundamentally restructure the companies, not to liquidate and break up and sell off the companies so that they don't exist.
So it would be something that would be very short-lived, if it had to come to that, in which it would also be backed by the government for the warranties. Last week, we saw that the government was also going to guarantee some of the suppliers so that the normal fears that either the suppliers or consumers might have in dealing with a company that was going through restructuring they wouldn't have to be as afraid of those problems.
And so this would be strictly a "temporary turnaround" kind of scenario, not a "dismantling of the company" scenario.
JEFFREY BROWN: Is the thinking, in essence, that bankruptcy could force the company to take actions that it will not or cannot otherwise do?
AUSTAN GOOLSBEE: I don't think necessarily that it requires -- it's not the bankruptcy that is that disciplinary device.
The president outlined the discipline. And he said, look, anything that's going to require money from the American taxpayer has got to be, as he has said for months, a bridge to somewhere not a bridge to nowhere. We're not just going to put companies on an allowance to keep them alive, that we've got to have restructuring. I really think that that is ultimately the thing that's going to bring everyone to the table.
JEFFREY BROWN: Now, some of today's headlines were quite remarkable. A lot of people probably shaking their head over things like "government forces out Wagoner." Why was it important to force out the CEO of G.M.? And how comfortable are you with the idea of this level of government intervention at that -- in a private company?
AUSTAN GOOLSBEE: Well, the company has outlined from the beginning, the government does not want to get in the business of being a car manufacturer and running the business in some day-to-day sense.
The clear view of most of the people as they start looking at this is that these are major efforts and require a big change on the part of the auto manufacturers and that it's not meant to be disrespectful to Mr. Wagoner and his lifetime of service there at G.M., but they need a new face and they need a new direction. And that's the way they went.
Change in leadership
JEFFREY BROWN: Even if the new CEO was apparently hair apparent, he's been part of the leadership for some time? How does that signal a big change?
AUSTAN GOOLSBEE: Well, I mean, he has experience in the auto industry, but he's clearly embodying a different approach. And what we're going to see coming out of the next 60 days is, they've got to get to being viable enterprises. And to do that, there needs to be fundamental restructuring.
JEFFREY BROWN: You also had questions -- and I think we saw it in our short tape piece there that Kwame Holman did -- about fair treatment vis-a-vis banks and financial institutions, for example, having Mr. Wagoner go when many bank executives have not been forced out. Are you feeling or how do you respond to this sense that maybe the administration's been tougher on the auto industry than it has on many financial institutions?
AUSTAN GOOLSBEE: Well, I would say two things about that. First, if you look at many of these financial institutions, they have forced a change in leadership, at AIG, at Fannie Mae, at Freddie Mac. So I don't think that it's necessarily an accurate comparison.
The second is, as G.M. and Chrysler are being in some sense treated differently because they are in different circumstances, it's clear that the overriding goal that the president has is to get us on a path to restructuring and recovery, in the auto sector, in the overall economy, in the financial sector. And we're looking at those things and trying to do that in a way that is appropriate to each company.
But, you know, all of the president's sympathies are with the workers and the communities. He outlined a task force that will be charged with coming up with solutions to help the restructuring efforts not just within the company, but helping the communities that are hard hit and have been hard hit in the auto industry.
JEFFREY BROWN: Is it clear now -- finally, let me just ask you briefly -- is it clear now that whatever happens here that we are looking at a much smaller auto industry in the future?
AUSTAN GOOLSBEE: I don't know that I would characterize it as that way. We have had a dramatic shrinking of the auto industry this past year. And it was with a clear-eyed recognition that there's been a very, very difficult period in Michigan and in other parts of the industrial Midwest that the president came to those conclusions.
JEFFREY BROWN: All right, Austan Goolsbee from the White House, thank you very much.
AUSTAN GOOLSBEE: Nice talking with you.