Ahead of crucial GM week, Obama confident of outcome
From Monsters and Critics.com
PREVIEW: Ahead of crucial GM week, Obama confident of outcome
By Pat Reber
May 23, 2009, 23:17 GMT
Washington – With imminent bankruptcy looming over the country’s largest car maker, US President Barack Obama Saturday said he was confident that General Motors will emerge ‘leaner, meaner (and) more competitive’ from its crisis.
In an interview with C-SPAN, the president did not indicate if GM was likely to pass the government’s test for added bail-out money – or if bankruptcy was instead the more certain alternative.
But Obama said the government’s unprecedented bail-out of GM and Chrysler, which declared bankruptcy last month, would hopefully result in ‘the kinds of fuel efficient, high performance cars that American consumers are hungry for.’
The cars will be needed when the country emerges from the worst recession since the 1930s and old clunkers have ‘finally given out,’ Obama said.
‘We’re confident that (US automakers) can emerge and take advantage of that new market and actually be very profitable and thrive,’ Obama told the public service broadcaster.
GM is racing to meet a government deadline to restructure its operations and settle outstanding debts with its creditors, or be forced into bankruptcy.
The biggest hurdle for the carmaker remains striking a deal with creditors who are owed some 27 billion dollars, with a decision on whether a compromise has been reached expected on Tuesday.
But the final verdict on bankruptcy won’t come until May 31, the deadline set by Washington for GM to prove it is financially viable and deserving of further government bail-out money.
GM has already received 19.4 billion dollars from the government, including 4 billion dollars just Friday. The company estimates it will need at least another 7.6 billion dollars after June 1.
On Thursday, GM reached a deal with the United Auto Workers Union to modify its labour contract and retiree healthcare plan, and a similar deal was made Friday with Canada’s auto unions.
But bondholders are resisting GM’s offer of 225 shares for each 1,000 dollars worth of debt, which would give them a 10 per cent stake in the company – as contrasted with 39 per cent unions would reportedly receive in exchange for giving up some retirement and health benefits.
‘It’s been a universal ‘no’ from the get-go,’ a spokesman for investors who hold about 20 per cent of overall debt, Nevin Reilly, was quoted by The New York Times as saying. ‘Bondholders are being seen as speculative bad guys, but bondholders are investors, many of whom put their retirement money into GM.’
The proposed deal for debt-holders has also drawn fire from Republicans in Congress, who sent a letter to Treasury Secretary Tim Geithner charging that Obama’s auto task force was waging a ‘war on capital’ by favouring the auto workers, The Washington Post reported.
Obama noted that the country needs 14 to 16 million new cars to replace cars on the road, far above the current slump level of 10 million vehicles being sold.
‘You are looking at a substantial market that is going to be available for US automakers if they’ve made some good decisions now,’ Obama said. If jobs are lost as the auto companies streamline, Obama was confident the slack will be taken up by ‘green energy and green jobs as an alternative manufacturing base.’
‘Ultimately, I think GM is going to be a strong company and we are going to be pulling out as soon as the economy recovers and theyve completed their restructuring,’ Obama said in the interview.
The automotive crisis is in part the result of the worst recession in decades. But US car makers have also faced escalating competition for decades from foreign car makers who are producing more fuel efficient vehicles.
Earlier this week, US President Barack Obama issued stringent fuel efficiency standards for all US cars and light trucks sold in the US by 2016, in an effort to limit carbon emissions and make US manufacturers more competitive.
Last week, GM announced massive cuts in its dealership network on as part of a drastic effort to cut costs and survive the global recession.
GM informed 1,100 of its nearly 6,000 dealers that their contracts will not be renewed. GM is also working to off-load its Saturn, Hummer and Saab brands, which will further reduce its network. Three firms Wednesday lodged bids to acquire GM’s European branch, including the Opel brand.