President Obama Asks For GM’s Shakeup and Issues Chrysler An Ultimatum

President Obama is expected to make a formal announcement later today about his plans for the auto company’s request for additional bailouts, which have already been given some $17.4 billion in bailout funds.

But when President Obama and his aides initially met last week with the CEOs of banking, manufacturing and industry, everyone expected the President to take these CEOs to task for past mistakes and overreaching. But no one quite expected that prior to the President’s planned speech regarding the status of the auto industry’s next round of bailouts, would the news prior to the speech be so dramatic. As acknowledged by Rick Wagoner, GM’s CEO, President Obama’s aides requested and received the immediate resignation of Mr. Wagoner as a precondition for further consideration for additional bailout funds for GM. GM’s Chief Operating Officer, Frederick “Fritz” Henderson, will serve as CEO until a permanent replacement is found, with longtime director Kent Kresa serving as its Interim Chairman. ¹

The ousting of Mr. Wagoner came as Obama administration officials said the government will give GM and fellow automaker, Chrysler, enough capital to work with their stakeholders to craft more aggressive reorganization strategies, but warned that a “quick and surgical” bankruptcy may be each company’s best chance for survival. The President is also expected to give Chrysler an ultimatum to either find a buyer or submit to a bankruptcy reorganization. While Chrysler’s CEO Robert Nardelli is unlikely to meet the same fate as Mr. Wagoner, the government plans to provide Chrysler with capital for only 30 days to cut a workable agreement with foreign auto giant, Fiat, or face the prospect of a pre-packaged bankruptcy with certain government funding guaranties.² There are no final buyout terms between Chrysler and Fiat.

Officials at Chrysler issued a statement saying it had agreed to a "framework" of a global alliance with the Italian auto maker, but not a final deal. Chrysler said it still has "substantial hurdles to resolve," but is committed to working to secure the support of necessary stakeholders. Without this framework, Chrysler will likely end up in a relatively brief, structured bankruptcy.³ We will update this blog in a later entry once the administration’s plans are formalized.

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¹As reported on March 30, 2009 by Politico’s Mike Allen and Josh Gerstein.
²As reported on March 30, 2009 by Market Watch’s Michael Kitchen.
³As reported on March 30, 2009 by WSJ’s News Alert.