WASHINGTON (Reuters) –
The Obama administration autos task force on Monday rejected the turnaround plans of General Motors Corp and Chrysler LLC and warned both could be put through bankruptcy to slash debts.
The announcement by the White House autos panel headed by former investment banker Steve Rattner marked a stunning reversal for management at both automakers and for GM investors and creditors who had bet on a softer line.
"We have unfortunately concluded that neither plan submitted by either company represents viability and therefore does not warrant the substantial additional investments that they requested," said a senior administration official, who asked not to be named.
Instead of granting GM's request for up to $30 billion in loans, the administration only pledged to fund GM's operations for the next 60 days while the top U.S. automaker develops an even more sweeping restructuring plan under new leadership.
GM CEO Rick Wagoner, who met on Friday with the task force, was forced out on Sunday at the request of Rattner, an official said. U.S. officials said plans were also underway to replace most of GM's directors in the coming months.
Both Wagoner and GM's board have been criticized for moving too slowly to take on some of the automaker's underlying problems that date back decades, including unprofitable brands such as Hummer and Saab, and a costly surplus of models.
Chrysler, which is controlled by Cerberus Capital Management, was given 30 days to complete an alliance with Italy's Fiat SpA or face a cut-off of its government funding that could force its liquidation.
The findings of the U.S. autos panel are due to be formally unveiled later on Monday by U.S. President Barack Obama.
CHRYSLER UNREALISTIC, OVERLY OPTIMISTIC
The autos panel rejected the claim by Cerberus that Chrysler could be viable on its own, citing its smaller size, weaker product line-up and declining U.S. market share.
In a written report, the panel said Chrysler's assumptions under the business plan it had submitted to the U.S. Treasury were "unrealistic or overly optimistic."
Chrysler had asked for another $5 billion in U.S. government loans on top of the $4 billion the automaker has already received.
If Chrysler can complete a tie-up with Fiat and cost-saving deals with creditors and its major union, the Treasury would consider investing up to another $6 billion, officials said.
In recent negotiations with the task force, Fiat has agreed to take less than the 35-percent stake in Chrysler the two companies had negotiated and to keep its stake in the U.S. automaker below a controlling 50 percent until the new government loan is paid back, the senior official said.
Meanwhile, GM President and Chief Operating Officer Fritz Henderson, the architect of the automaker's existing turnaround plan, will become CEO and work with U.S. officials and outside advisers in coming up with a "a more aggressive restructuring plan," officials said.
"We believe our approach to GM is starting with a clean sheet of paper," the senior official said.
The official said the Obama administration had not ruled out a structured, quick bankruptcy process for either GM or Chrysler. Such a process, he said, could shed debt at a time when GM bondholders and Chrysler's bank have held out against concessions.
"Think of it as a quick rinse," the senior official said. "It would be very, very short. Potentially as little as 30 days. The companies would emerge from the other side very quickly."
(Reporting by Kevin Krolicki and John Crawley; Editing by Lincoln Feast)