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U.S. Sets Tough Targets For GM, Chrysler

MELISSA BLOCK, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

MICHELE NORRIS, host:

And I'm Michele Norris.

After billions of dollars in taxpayer loans, President Obama has given General Motors and Chrysler a hard deadline to fix their businesses - 60 days for GM, 30 days for Chrysler.

President BARACK OBAMA: Now's the time to confront our problems head-on and do what's necessary to solve it.

NORRIS: Otherwise the companies and the people to whom they owe money are headed for bankruptcy court. NPR's Frank Langfitt reports on a watershed moment for Detroit's once-proud auto industry.

FRANK LANGFITT: The government has loaned GM and Chrysler $17 billion just to survive. This week the companies had to prove they could be viable. The White House auto task force said they'd failed and the president signaled that the day of reckoning may have arrived.

Pres. OBAMA: Year after year, decade after decade, we've seen problems papered over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we've reached the end of that road.

LANGFITT: Mr. Obama is giving GM 60 more days, and Chrysler another 30 days, to make deeper cuts. That includes restructuring more than $50 billion in debt to bond holders and healthcare obligations to the United Auto Workers. The government will provide funding to keep the companies operating and back warranties for cars sold during that time. But, Mr. Obama said if the automakers don't produce results, they will face a bankruptcy judge.

Pres. OBAMA: While Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they develop. That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger.

LANGFITT: The president said he was confident GM could turn around. He was less optimistic about Chrysler. Yesterday Mr. Obama forced out GM CEO Rick Wagoner. Wagoner had fought thought chapter 11. Today, his former employer struck a more conciliatory tone. In a statement, the company said GM will take whatever steps are necessary to successfully restructure the company, which could include a court supervised process.

Mr. JOHN CASESA (Prominent, Auto analyst): Well, I think the task force is prepping, you know, all the constituencies for a prepackaged bankruptcy.

LANGFITT: That's John Casesa. He's prominent auto analyst and a former GM employee, and he summed up a growing consensus among auto observers. Given the short timeframe and huge debts, Casesa said it would be hard for GM to make the sweeping changes needed outside of court.

Mr. CASESA: It'll take extraordinary concessions on the part of the stakeholders, particularly the bondholders and the union, to avoid bankruptcy. It could happen, but the odds aren't high.

LANGFITT: But many still see a lot of value in GM and can envision a future beyond bankruptcy. The outlook for Chrysler is not as bright. The government is giving Chrysler half as much time to do even more. Not only does it have to slash costs, it also has to complete a deal with the Italian carmaker Fiat to become globally competitive.

Mr. MICHAEL ROBINET (CSM Worldwide): It's equivalent of a 70-year field goal.

LANGFITT: Michael Robinet works for CSM Worldwide, a respected auto forecasting firm. He says Fiat could provide the small fuel efficient cars Chrysler needs to compete, but it could take at least a year and half to produce them in the U.S. While it's still possible both Chrysler and GM could make it, Robinet is skeptical.

Mr. ROBINET: It's going to be extremely difficult for Chrysler to survive in the future. We're going to have to face facts, and a stronger Detroit two makes probably more sense than a weaker Detroit three.

LANGFITT: Chrysler tried to stay upbeat yesterday. In a statement, the company said it will keep trying to slash its obligations and forge a strong union with Fiat. The government has said it's willing to help finance such a deal if it believes it will work. And that, almost certainly, is Chrysler's last best hope.

Frank Langfitt, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Frank Langfitt is NPR's London correspondent. He covers the UK and Ireland, as well as stories elsewhere in Europe.