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Obama Is Stern With Automakers

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President Obama speaks about his administration's new policy for General Motors, giving the auto giants working capital for 60 and 30 days to come up with a plan to become viable in the long term. Video by CBSNEWS.com

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Wagoner will remain with the company in an unspecified role in which he will draw a salary of $1 a year.

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If he leaves the company, he would become eligible for retirement payments worth an estimated $20 million. During each of the first five years of retirement he would receive $4.5 million, the company said. He would also receive an $69,000 annuity for life.

Officials at the Treasury Department, chastened by the furor over large bonus payments at American International Group, are seeking a means to block those payments to Wagoner, a source familiar with the matter said.

Moreover, under the terms of GM's loan agreement, GM is barred from paying its former chief executive a cash severance. While the automaker was not contractually obligated to pay Wagoner a severance before it received the loans, the board could have voted to pay him a severance of up to about $17.1 million, according to an analysis by Equilar, an information services company specializing in executive compensation.

Regardless of such attempts to cut his compensation, Obama praised Wagoner during yesterday's announcement.

"This is not meant as a condemnation of Mr. Wagoner, who has devoted his life to this company and has had a distinguished career," Obama said. "Rather, it's a recognition that it will take new vision and new direction to create the GM of the future."

In order to win more federal aid, the companies must now restructure, according to the dictates of the Obama administration.

Rejecting both companies' current business plans, the president's autos task force faulted the companies for clinging to overly optimistic assumptions about their future market share, for an overemphasis on big trucks, and for failing to meet consumer demand for smaller cars that has been met by foreign competitors.

Moreover, the task force characterized the Chevy Volt, the electric-powered car that GM had touted as the flagship of its future, as too expensive compared with its gas-powered peers to be viable in the near term.

Under Treasury's revised terms for the proposed Chrysler-Fiat alliance, Fiat initially would take a smaller 20 percent stake in Chrysler, down from 35 percent according to a person familiar with the plan who was not authorized to speak publicly. Fiat's stake would grow if the company does well.

For both companies, one of the most critical problems is the volume of debt they carry.

GM, for example, has $27 billion in outstanding bonds and owes its retiree health plan an estimated $20 billion.

Under existing federal loans worth $17.4 billion, the companies were supposed to reach an agreement by today with the union and other creditors to reduce their debt load, but neither has done so.

Now the possibility of bankruptcy is likely to push the union and the companies' creditors back to the negotiating table.

"Without the threat of bankruptcy you can't do anything," said David Cole, chairman of the Center for Automotive Research.

As recently as last week, GM's bondholders, for example, essentially rejected the sacrifices that the Bush administration had called for in December. But yesterday, they softened. Advisers to a committee of GM bondholders said "bondholders have been and remain willing to reduce GM's future debt burden."

"We look forward to working with the company and the task force to configure an exchange that will maximize the chances of a successful out-of-court restructuring," they said in a statement. "All parties seem to agree that an out-of-court restructuring would be the preferred path to viability."

Sen. Carl M. Levin (D-Mich.) said bondholders now face a "stark choice."

"Their option again is to either take a haircut or to take a bath," he said on a conference call with reporters yesterday.

For dealers and suppliers, who are already running on low on cash because of slumping sales, the next round of concessions could be very difficult.

"It's the ultimate sacrifice of going out of business," said John McEleney, chairman of the National Automobile Dealers Association.

Staff writer Shailagh Murray contributed to this report.


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