1 Apr 2009

US toughens conditions for car industry aid

6:37 am on 1 April 2009

United States President Barack Obama has ordered General Motors and Chrysler to accelerate their turnaround efforts and brace for possible bankruptcy, saying bailout funds will be limited and poor decision-making will not be excused.

The president's task force on autos on Monday rejected turnaround plans submitted by both GM and Chrysler following their December bailout of $US17.4 billion.

The bailout required the companies to reach new concessions and lay out a case for survival.

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 $US16 billion in loans.

General Motors chairman and chief executive 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.

President Obama said that if GM and Chrysler cannot come up with viable plans to return to profitability, they may need to use the bankruptcy process "as a mechanism to help them restructure quickly and emerge stronger."

He said that if this option is used, it would mean that the firms "with the backing of the US government," can "quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success."

In steps intended to lift US auto sales from nearly 30-year lows, Mr Obama also offered his support for a tax credit modeled on programmes in Germany and elsewhere that would give consumers a deduction of up to $5,000 to trade in older and less fuel-efficient vehicles.

The US auto industry, including cash-strapped dealers and suppliers, has cut 400,000 jobs over the past year.