WASHINGTON - The future of the North American auto industry was perched on a knife's edge Monday after governments in both Canada and the United States warned automakers to reinvent themselves or face bankruptcy.
U.S. President Barack Obama spurned both General Motors and Chrysler in their pleas for more federal bailout money, telling them no more taxpayer dollars would be forthcoming until they dramatically altered their business plans.
"These companies -- and this industry -- must ultimately stand on their own, not as wards of the state," Obama said in a terse statement at the White House, flanked by Treasury Secretary Tim Geithner.
Speaking a day after his administration ousted the chairman of General Motors, Obama said the government will provide financing to GM for 60 days while it comes up with a better restructuring plan.
Chrysler, on the other hand, must form a partnership with the Italian automaker Fiat within 30 days in order to get another federal dime. The automaker said Monday it was negotiating a new alliance "framework" with Fiat after claiming earlier in the day it had sealed a deal.
Obama said his plan was drafted after consulting officials in Canada and Mexico, adding that the Canadian government has "indicated its support for our approach."
In Ottawa, Industry Minister Tony Clement said GM and the Canadian Auto Workers union would have to reopen their recent concession-filled agreement and find even more cost-cutting measures. The union rejected that idea.
"Going forward, the industry will undoubtedly be smaller, but if our efforts are successful it will be viable and it will support good jobs for Canadians," Clement said.
"What has become apparent over the last few months is that this is not just a temporary blip in the marketplace. There is some fundamental restructuring that must take place."
The fresh uncertainty surrounding the North American auto sector sent stocks tumbling on the heels of a spring rally that has seen equities surging for much of March.
The S&P/TSX composite index retreated 224.84 points, or 2.5 per cent, to 8,596.22, while New York's Dow Jones industrial average fell 254.16 points to 7,522.02. The Canadian dollar dropped 1.56 cents to 79.25 cents US.
General Motors employs 12,000 people in Canada while Chrysler employs 9,400. But tens of thousands of additional jobs are tied to the success of the two companies through the parts sector, suppliers and dealerships.
Obama said neither Chrysler nor GM had shown any real progress in overhauling its operations that would justify receiving the billions more in federal bailout funds that they're seeking.
Ford Motor Co., the third member of the Detroit Big Three, hasn't requested federal bailout funds, and wasn't included in the president's remarks.
For years, the Big Three automakers have watched their profits plummet as foreign competitors routinely outpaced them with smaller, more fuel-efficient vehicles.
Late last year, the outgoing Bush administration approved US$17 billion in federal funds to help GM and Chrysler survive. It also demanded both companies submit restructuring plans for the new Obama administration to review.
Almost four months later, in an atmosphere of rabid populist anger about major corporations receiving federal bailout funds amid a devastating recession, Obama said those plans don't measure up.
He added that a failure of leadership "from Washington to Detroit" has left the carmakers teetering on the brink of collapse.
"And so today, I am announcing that my administration will offer GM and Chrysler a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars; a period during which they must produce plans that would give the American people confidence in their long-term prospects for success."
The president said he was "absolutely committed" to the survival of a domestic auto industry that can compete internationally.
"We cannot, and must not, and we will not let our auto industry simply vanish. . . . It's a pillar of our economy that has held up the dreams of millions of our people," he said.
"But we also cannot continue to excuse poor decisions, and we cannot make the survival of our auto industry dependent on an unending flow of tax dollars."
Obama also announced several steps to reassure American consumers and improve the chances that U.S. automakers will be able to sell their cars and trucks. Among other measures, he said, the government will stand behind warranties issued by the carmakers, a sweeping new guarantee that some in Congress had sought.
The North American auto industry has lost more than 400,000 jobs in the past year. Officials announced last week that bailout funds would be made available to companies that supply the automakers in an attempt to keep them afloat.
GM failed to make good on promises delivered in exchange for $13.4 billion in government loans. Chrysler, meanwhile, has survived on $4 billion in federal aid during the economic downturn and the worst decline in auto sales in 27 years.
In progress reports filed with the government in February, GM asked for $16.6 billion more and Chrysler wanted $5 billion more.
No dice, said Obama.
The president said he's "absolutely confident that GM can rise again, providing that it undergoes a fundamental restructuring." He stressed that the U.S. government has no interest in running GM despite forcing out its CEO, Richard Wagoner.
The White House's insistence that Wagoner step aside represents an unprecedented intervention of the federal government into the management of a private company. But a senior administration official says a "clean sheet" was needed at the automaker.
Obama said Monday that if GM is unable to restructure and Chrysler cannot strike a deal with Fiat, they might need to use the bankruptcy code "as a mechanism to help them restructure quickly and emerge stronger."
Such a measure could enable the companies to "quickly clear away old debts that are weighing them down" even as their workers remain on the job, he said.
