Last chance for GM, Chrysler?
John Crawley, Helen Massy-Beresford
Reuters
WASHINGTON/PARIS – The Obama administration seized the wheel of the failing U.S. auto industry on Monday, forcing out General Motors Corp's CEO, pushing Chrysler LLC toward a merger and threatening bankruptcy for both.
GM shares plunged around 20 per cent in Frankfurt after steps outlined by the White House autos panel marked a stunning reversal for management at both GM and private equity-owned Chrysler.
The moves came after Europe's second-biggest carmaker by sales – PSA Peugeot Citroen – ousted CEO Christian Streiff, replacing him with former Corus head Philippe Varin from June 1.
The Obama administration pledged only to fund GM's operations for the next 60 days while it develops a sweeping restructuring plan, instead of granting GM's request for up to a further $16 billion (dollar figures U.S.) in loans.
GM CEO Rick Wagoner, who had presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the autos panel headed by former investment banker Steve Rattner. A majority of GM's board will also be replaced.
"We are left to look back and say that Wagoner's appointment as both chairman and CEO in 2003 was little more than an act to ensure the dynasty of GM boardroom arrogance and failure continued," said Howard Wheeldon, senior strategist at brokerage BGC Partners.
Wheeldon said Wagoner's departure had been all but inevitable since the automaker sought government funds and said he was disappointed the authorities had not insisted on an external replacement.
UNDER FIRE
Wagoner protégé and GM President and Chief Operating Officer Fritz Henderson was named as new CEO. Wagoner's departure came as the Obama administration came under fire for not blocking bonuses to executives at American International Group Inc.
The senior labour leader of GM's German brand Opel, being spun off with the UK's Vauxhall and seeking investors and government support, said the move was overdue.
In Europe, auto stocks fell on concerns about the broader industry impact of the failure of a major U.S. producer. The DJ Stoxx European autos index fell 6.4 per cent by mid morning, while PSA Peugeot Citroen fell 7.7 per cent.
In France PSA Chairman Thierry Peugeot said in a statement the exceptional difficulties faced by the industry warranted a change in management, but Streiff defended himself saying his policies had equipped the group to weather the storm.
Some analysts viewed the appointment of Philippe Varin as positive.
"It brings somebody in that can look at the problem with fresh eyes. The hope will be that he will have a similar impact here to the impact (Sergio) Marchionne had at Fiat, and indeed Varin had at Corus," said Credit Suisse analyst Stuart Pearson.
Elsewhere, Russia's Avtovaz bucked the trend, its shares surging after Prime Minister Vladimir Putin pledged 20 billion roubles in aid, while Spain's plan to grant subsidies for green cars won approval from the European Commission.
Chrysler, controlled by Cerberus Capital Management, was given 30 days to complete an alliance with Italy's Fiat or face a cut-off of its government funding that could force its liquidation.
Fiat was not immediately available for comment.
The autos panel rejected a claim by Cerberus that Chrysler could be viable on its own, citing its relatively small size, weak product line-up and declining U.S. market share.
AGGRESSIVE RESTRUCTURING
If Chrysler can complete a tie-up with Fiat and cost-saving deals with creditors and its major union, the Treasury would consider investing up to another $6 billion, officials said.
U.S. officials said there had been progress in recent negotiations involving the task force. Fiat had agreed to take less than the 35 per cent stake in Chrysler the two companies had first negotiated, the senior official said.
Meanwhile, Henderson, a key architect of GM's now-rejected turnaround plan, was charged with working with U.S. officials and advisers to develop a more aggressive restructuring.
"We believe our approach to GM is starting with a clean sheet of paper," the senior official said.
GM bondholders, the official said, could have to take less than the 33-cent-on-the-dollar payout they have been offered and should abandon hope of a government guarantee.
The Obama administration had also not ruled out a quick bankruptcy process for either GM or Chrysler, he said.
Wagoner had been outspoken in his opposition to a Chapter 11 reorganization, saying it would drive away consumers and probably lead to GM's liquidation.
GM had asked for more than $16 billion in new government loans, while Chrysler wanted $5 billion to ride out the weakest market for new cars in almost 30 years.
GM has lost about $82 billion since 2005 when its problems began to mount in the U.S. market. GM stock has also lost about 95 per cent of its value since Wagoner took over as CEO. Although he inherited many of the company's deeper problems, his critics say he failed to act fast enough to resolve them.
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