The Obama administration refused on Sunday night to give fresh bail-out money to General Motors and Chrysler, telling the carmakers to come up with new plans or risk insolvency.
GM has received $13.4bn in government aid and had asked for an additional $16.6bn. Chrysler has received $4bn and had asked for another $5bn. But both companies failed to meet targets on cutting their debt and reducing the cost of benefits paid to workers.
Officials said on Sunday night that Chrysler would be given 30 days and GM 60 days to reach agreement with debtholders and unions, with new tougher targets for cost cutting, or they would lose their last chance for a government bailout, almost certainly sending them into bankruptcy.
??That??s going to mean a set of sacrifices from all parties involved: management, labour, shareholders, creditors, suppliers, dealers,? President Barack Obama said Sunday on CBS, before the details had been laid out.
The task force, whose members include former investment bankers Steve Rattner and Ron Bloom, decided that the companies had failed to prove their viability and would not, therefore, receive the combined $21.6bn of taxpayer money they had asked for.
However, both carmakers will be supported with working capital as they work to meet their new deadlines on restructuring and could end up with more funds than they had requested. Existing loans will not be recalled.
Warranties on the companies?? cars sold in the US will be guaranteed by the government in a bid to prevent buyers from turning away from GM and Chrysler. US car sales have dropped from 16m a year earlier this year to a current trend of less than 10m a year.
Even though it is Mr Wagoner who is unseated at GM, the company received a much better report card than Chrysler, whose cars were condemned as lacking in quality.
While the task force concluded that GM could be turned into a strong business, it decided that Chrysler cannot survive independently.
