US president Barack Obama said today Rick Wagoner's departure as General Motors' chairman was a recognition that the company needs new direction even as he said the government did not want to run GM.
A day after the White House let out word that Mr Wagoner would be stepping down, Mr Obama said the executive's departure was not meant as a condemnation.
"Let me be clear: the United States government has no interest or intention of running GM," Obama said, according to prepared remarks.
"What we are interested in is giving GM an opportunity to finally make those much-needed changes that will let them emerge from this crisis a stronger and more competitive company." Mr Obama said the United States will not let the auto industry simply vanish, but that it must be retooled so it can survive without an "unending flow of tax dollars."
He also said GM and Chrysler unions and workers must make more painful concessions to help the companies become economically viable.
Major US stock indexes opened sharply lower following the harsher-than-expected medicine for the distressed US auto companies whose fortunes have steadily worsened amid recession and consumer credit woes this year.
All three of the major US stock indexes fell more than 3 per cent on the developments out of Washington, which prompted Standard & Poor's lead auto analyst to say that the bankruptcy risk for all three domestic automakers, including Ford Motor, remains high.
GM shares lost 24 per cent while Ford was off 7.5 per cent. Chrysler is privately held by Cerberus Capital Management.
"Given where the industry is, these highly unprecedented actions are consistent with the unprecedented times we're in," S&P's Robert Schulz said in an interview.
Mr Obama's task force on autos rejected turnaround plans submitted by both GM and Chrysler following their December bailout of $17.4 billion. The bailout required the companies to reach new concessions and lay out a case for survival.
Nevertheless, a senior administration official said "we want to do everything" to try and save the companies.
Mr Obama is promising 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 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.
Mr Wheeldon said Mr 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.
Mr Wagoner protege and GM president and chief operating officer Fritz Henderson was named as new CEO. Mr Wagoner's departure came as the Mr Obama administration came under fire for not blocking bonuses to executives at American International Group.
Chrysler was deemed by the task force to be not viable as a stand-alone company and was 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 US market share.
Chrysler wanted $5 billion in new aid.
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.
US 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 that the two companies had first negotiated, the senior official said.
The Obama administration had also not ruled out a quick bankruptcy process for either GM or Chrysler, he said.
Reuters