Obama's tough auto stance may include bankruptcy

Mon Mar 30, 2009 7:19pm EDT
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By Kevin Krolicki and John Crawley

WASHINGTON (Reuters) - President Barack Obama ordered General Motors Corp and Chrysler LLC to accelerate their survival efforts and brace for possible bankruptcy, saying neither company had done enough to justify the taxpayer money they were seeking.

Obama, describing the industry as a pillar of the economy, nevertheless gave GM and Chrysler a little more time and money to wring further concessions from workers, creditors and other stakeholders.

"We cannot, we must not, and we will not let our auto industry simply vanish," Obama said in White House remarks on Monday that were partly overshadowed by his decision to force out GM CEO Rick Wagoner.

U.S. stock indexes tumbled on the harsher-than-expected government stance, which could push GM and Chrysler closer to a bankruptcy court restructuring that could threaten equity holders and force deeper losses on creditors.

A committee representing GM bondholders planned to meet later on Monday to discuss a debt restructuring plan according to a source familiar with the situation.

With about $28 billion in debt to bondholders, the GM offer would translate into $2.2 billion in cash, $4.3 billion in debt and an additional stock-based payout in a recapitalized company that would all but wipe out current stockholders.

The Obama administration is giving GM 60 days to rework its survival plan. The new CEO of the biggest U.S. automaker said a court-supervised restructuring in bankruptcy might be necessary.

Chrysler's operation would be funded for the next 30 days as it works to complete an alliance with Italy's Fiat SpA, considered the No. 3 U.S. maker's best chance of surviving.   Continued...

<p>A row of new Chrysler Jeep Commander SUVs are seen at a dealership in Maryland, July 1, 2008. REUTERS/Yuri Gripas</p>