Wow. and I mean wow. I never thought I’d see Obama and crew reject the GM/Chrysler bailout request.

This is is political suicide imho, but I have to hand it to this admin for having some balls to do this…

What caught my attention was that this administration already decided who the survivor would be.

“While the task force concluded that GM could be turned into a strong business, it decided that Chrysler cannot survive independently.”

“Even though it is Mr Wagoner who is unseated at GM, the company received a much better report card than Chrysler, whose cars were condemned as lacking in quality”.

Ouch…..

The fine print:

“However, both carmakers will be supported with working capital as they work to meet their new deadlines on restructuring and could end up with more funds than they had requested. Existing loans will not be recalled.”
—————————————–

http://www.ft.com/cms/s/0/a2ede9ae-1cc1-11de-977c-00144feabdc0.html?referrer_id=yahoofinance&ft_ref=yahoo1&segid=03058&nclick_check=1

The Obama administration refused on Sunday night to give fresh bail-out money to General Motors and Chrysler, telling the carmakers to come up with new plans or risk insolvency.

GM has received $13.4bn in government aid and had asked for an additional $16.6bn. Chrysler has received $4bn and had asked for another $5bn. But both companies failed to meet targets on cutting their debt and reducing the cost of benefits paid to workers.

White House ousts GM chief – Mar-30
Profile: GM’s Rick Wagoner – Mar-30
In depth: Detroit in distress – Dec-11

The crisis talks between the companies and the administration’s auto task force cost the job of Rick Wagoner, chief executive of General Motors, who was asked to step down by the White House after 30 years with the carmaker.

Officials said on Sunday night that Chrysler would be given 30 days and GM 60 days to reach agreement with debtholders and unions, with new tougher targets for cost cutting, or they would lose their last chance for a government bailout, almost certainly sending them into bankruptcy.

“That’s going to mean a set of sacrifices from all parties involved: management, labour, shareholders, creditors, suppliers, dealers,” President Barack Obama said Sunday on CBS, before the details had been laid out.

“Everybody is going to have to come to the table and say it’s important for us to take serious restructuring steps now in order to preserve a brighter future down the road … They’re not there yet,” Mr Obama said.

The task force, whose members include former investment bankers Steve Rattner and Ron Bloom, decided that the companies had failed to prove their viability and would not, therefore, receive the combined $21.6bn of taxpayer money they had asked for.

However, both carmakers will be supported with working capital as they work to meet their new deadlines on restructuring and could end up with more funds than they had requested. Existing loans will not be recalled.

Warranties on the companies’ cars sold in the US will be guaranteed by the government in a bid to prevent buyers from turning away from GM and Chrysler. US car sales have dropped from 16m a year earlier this year to a current trend of less than 10m a year.

GM’s Frankfurt-listed shares dropped sharply, falling 11.6 per cent.

Chrysler’s hopes for survival hinge on finalising a partnership agreement with Fiat, the Italian carmaker, which has offered to acquire 35 per cent of GM in return for technology.

In a bid to prevent US taxpayer money going overseas, the task force has said it would offer up to $6bn in support to Chrysler but only with the agreement from Fiat to build new cars and engines in the US.

If Fiat wants to lift its ownership above 50 per cent, Chrysler will first have to pay back the bail-out money.

A senior administration official said the companies had failed to meet a number of benchmarks, including the requirement for GM to reduce its $27bn unsecured debt to $9bn.

Bondholders in GM, who have railed against the administration and the company as the March 31 deadline for an agreement approached, are now faced with conceding to new, even tougher, demands for debt reduction or accepting the results of a court-supervised bankruptcy.

The task force has made clear that it does not want to see the companies lapse into a traditional Chapter 11 bankruptcy from which they are unlikely to re-emerge, but would use a quick court-supervised process to restructure them forcibly as part of any final settlement.

Even though it is Mr Wagoner who is unseated at GM, the company received a much better report card than Chrysler, whose cars were condemned as lacking in quality.

While the task force concluded that GM could be turned into a strong business, it decided that Chrysler cannot survive independently.