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Washington - President Barack Obama has offered the embattled US auto sector a dose of tough love, vowing to save what he called a "pillar" of the US economy but warning bankruptcy might be the only solution.
"We cannot, we must not, and we will not let our auto industry simply vanish," Obama declared on Monday after a White House task force issued a hard-hitting report faulting recovery plans drafted by auto giants General Motors and Chrysler.
"It is a pillar of our economy that has held up the dreams of millions of our people.
"But we also cannot continue to excuse poor decisions. And we cannot make the survival of our auto industry dependent on an unending flow of tax dollars."
If GM and Chrysler cannot come up with viable plans, they may need to use the bankruptcy process "as a mechanism to help them restructure quickly and emerge stronger," Obama said.
Bankruptcy reorganisation would mean that the firms, "with the backing of the US government," can "quickly clear away old debts that are weighing them down."
He also called for "an unprecedented effort on all our parts" to help the auto makers survive.
Obama on Monday staged a dramatic intervention in the gathering crisis at GM, calling successfully for the removal of company chairperson and chief executive Rick Wagoner.
But Wagoner will not depart GM empty-handed. A company spokesperson said he would receive some $20m in retirement benefits and other compensation.
The recovery measures proposed by GM and Chrysler "did not establish a credible path to viability," the presidential task force concluded, warning that neither had met strict conditions laid out in a $17.4bn government bailout agreed late last year.
The two companies are now seeking an additional $21.6bn in government aid, which will only be forthcoming if they submit more realistic plans.
The manufacturers are to be given new deadlines and "an adequate amount of working capital to establish a new strategy for long-term economic viability," the report said.
GM was granted 60 days "to develop a more aggressive restructuring plan and a credible strategy," while Chrysler, deemed unable to stand alone, was told to secure a partnership with Italy's Fiat by April 30.
The news prompted a huge stock market sell-off on Monday, as GM shares slid 25%. Ford, which is not seeking government aid, dropped 2.8%.
GM said it maintained a "strong preference" to stay out of bankruptcy court and pledged to "take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process."
The New York Times reported on Tuesday that the company could shed its gas-guzzling Hummer brand of vehicles.
Sales of the big sports utility vehicle fell 51% last year, the steepest drop in the US auto industry, as consumers struggling with debt and joblessness lost their appeitite for such wagons.
The administration said it would provide Chrysler with "working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders."
If that succeeds, the government "will consider investing up to the additional $6bn requested by Chrysler."
Chrysler chairperson Bob Nardelli said its proposed global alliance with Fiat was "supported by the US Treasury" and the deal "enhances its business model that expands its global competitiveness."
Chrysler and Fiat signed a preliminary accord in January to form an alliance under which Fiat would initially take a 35% stake in Chrysler, a share that could rise to 55%.
While Fiat would pay nothing, it agreed to provide Chrysler with access to its technology.
The tie-up would give Chrysler, whose SUVs and pick-up trucks no longer enjoy much demand, access to Fiat's platforms, components and engines in order to launch smaller, more economical new models.
Nardelli estimated that such access was worth between $8bn and $10bn in research and development costs.
Fitch ratings agency analyst Emmanuel Bulle said Chrysler would also benefit from "the experience of Fiat management which succeeded in turning the company around after a very difficult period."
Fiat chief executive Sergio Marchionne is credited with overseeing the recovery, which began when he took over the company when it was on the verge of collapse in 2004.
- AFP
