Monday 30th March 2009
U.S. President Barack Obama issued an ultimatum to struggling American automakers General Motors (GM) and Chrysler: In order to receive additional bailout loans from the government, companies needed to make dramatic changes in the way they ran their businesses. The president also announced a set of initiatives intended to assist the struggling U.S. auto industry and boost consumer confidence, including government backing of GM and Chrysler warranties, even if both automakers went out of business. In December 2008, GM (the world’s largest automaker from the early 1930s to 2008) and Chrysler (then America’s third-biggest car company) accepted $17.4 billion in federal aid in order to stay afloat. At that time, the two companies had been hit hard by the global economic crisis and slumping auto sales; however, critics charged that their problems had begun several decades earlier and included failures to innovate in the face of foreign competition and issues with labor unions, among other factors. President Obama’s auto task force determined that Chrysler was too focused on its sport utility vehicle (SUV) lines and was too small a company to survive on its own. In his March 30 announcement, Obama gave Chrysler a month to complete a merger with Italian car maker Fiat or another partner. Shortly before its April 30 deadline, Chrysler said it had reached agreements with the United Auto Workers union as well as its major creditors; however, on April 30, Obama announced that Chrysler, after failing to come to an agreement with some of its smaller creditors, would file for Chapter 11 bankruptcy protection, then form a partnership with Fiat. The move made Chrysler the first big automaker to file for bankruptcy and attempt to reorganize since Studebaker did so in 1933. As for General Motors, according to the conditions Obama announced on March 30, the auto giant had 60 days to undergo a major restructuring, including cutting costs sharply and getting rid of unprofitable product lines and dealerships. Over the next two months, GM said it would shutter thousands of dealerships and a number of plants, as well as phase out such brands as Pontiac. Nevertheless, on June 1, 2009, GM, which was founded in 1908, declared bankruptcy. At the time, the company reported liabilities of $172.8 billion and assets of $82.3 billion, making it the fourth-biggest U.S. bankruptcy in history.