No more excuses, Detroit. You will build fuel-efficient cars, and you’ll do it now.
President Obama laid out the future of the U.S. auto industry this morning, and it involves a sharp turn away from gas guzzlers and toward the production of world class clean-energy, fuel-efficient vehicles.
The president took full advantage of the only silver lining in the Big Three’s financial meltdown: The industry’s need for federal money gives the government unprecedented leverage to force corporate changes. Obama used that leverage today to effectively fire GM CEO Rick Wagoner (above), force Chrysler into a merger with Fiat, and order a change in direction for the U.S. auto industry.
“Year after year, decade after decade, we have seen problems papered over and tough choices kicked down the road, even as foreign competitors outpaced us. Well, we have reached the end of that road," the president said.
“We cannot, we must not, and we will not let our auto industry simply vanish. But we also cannot continue to excuse poor decisions. ... I am confident that if all of us are doing our part, then this restructuring, as painful as it will be in the short term, will mark not an end, but a new beginning for a great American industry that is once more out-competing the world, a 21st century auto industry that is creating new jobs, unleashing new prosperity and manufacturing the fuel-efficient cars and trucks that will carry us towards an energy-independent future."
As a condition of the two automakers' $17.4 billion federal bailout in December, the Bush administration ordered GM and Chrysler to submit restructuring plans explaining how they would modernize their failing businesses to become competitive again in the world market.
Obama's task force on autos reviewed those plans over the past month and rejected both as too weak. The task force ordered new plans that, in addition to financial and operational restructuring, refocus the companies on building fuel-efficient vehicles. It also called for Wagoner’s resignation and the removal of most of GM’s board of directors. Wagoner, who had been at the helm of GM since 2000 and oversaw its swift decline, said he agreed to resign under pressure from the White House.
The management shake-up is only the start of a much-needed makeover for GM, though, and Obama is holding tight to the purse strings to make sure it happens. He refused to approve the additional $16 million the company requested and instead agreed to federal aid for only the next 60 days.
That's puts GM and its new CEO, former GM President and Chief Operating Officer Fritz Henderson, on a tight deadline to prove the automaker can reemerge as a successful business that meets tomorrow’s transportation needs.
The president offered some guidance this morning by spelling out Henderson's job description for him:
“I am absolutely committed to working with Congress and the auto companies to meet one goal: The United States of America will lead the world in building the next generation of clean cars.”
If GM changes direction, the company can be viable, Obama said.
However, the president's auto task force wasn't as optimistic about Chrysler. It determined that the smallest of the Big Three automakers wasn’t stable enough to survive on its own. Today, Obama gave the company 30 days to complete a merger with Italy's Fiat or lose its government funding. If the merger succeeds, he said, the U.S. will consider an additional $6 million to support the company.
Chrysler CEO Bob Nardelli wrote on the company's blog today that his company and Fiat had “agreed on a framework for a global alliance, supported by the U.S. Treasury.” Under the agreement, Chrysler will have access to Fiat's platforms for fuel-efficient, small and medium-sized vehicles, and Fiat will have the service and sales networks and assembly plants its needs to bring the Alfa Romeo back to the U.S. and introduce its Fiat 500 car. The tiny Fiat 500 uses an idle-reducing start-and-stop technology that gives it around 40 mpg in city driving.
Obama is hopeful that the Chrysler-Fiat merger will stabilize Chrysler and bring its auto lineup into the 21st century.
“Fiat is prepared to transfer its cutting-edge technology to Chrysler and, after working closely with my team, has committed to building new fuel-efficient cars and engines here in America,” Obama said.
Much of the reporting on the president's announcement today focused on the immediate: Wagoner's departure, the president's suggestion that GM and Chrysler may have to go into bankruptcy, and his promises to car buyers that incentives are coming and that they will still be able to get their GM and Chrysler vehicles serviced and their warranties will be safe.
The president's response shows that he is looking farther down the road than that.
Let's hope his new vehicle purchase incentives and promises to step up government fleet purchases also encourage investment in the cleanest, most fuel-efficient vehicles.