After nine years at the helm of the tottering auomobile giant, GM CEO Rick Wagoner submitted his resignation, at the request of the Obama administration.
The resignation comes as a follow-up to the Obama administrations's decision to deny additional bailout funds to GM and Chrysler, setting the stage for a crisis in Detroit and putting in motion what could be the final two months of two American auto giants.
This may be the end of Big Auto in America as we know it.
In the wake of Rick Wagoner's resignation, Fritz Henderson, GM's president and chief operating officer, has become the new CEO, a treasury department official said.
Board member Kent Kresa, the former chairman and CEO of defense contractor Northrop Grumman Corp., will be interim chairman of the GM board. One official said a majority of the GM board was expected to step down.
In progress reports filed with the government in February, GM asked for an extra $16.6 billion and Chrysler for another $5 billion. However, their restructuring plans, a condition for any more government aid, did not meet with the administration's approval.
Saying neither had submitted acceptable plans to receive more bailout money, President Barack Obama and his top advisers have determined that neither company is viable and that taxpayers will not spend untold billions more to keep the pair of automakers open forever.
In a last-ditch effort, the administration gave each company a brief deadline to try one last time to convince Washington they were worth saving, said senior administration officials who spoke on the condition of anonymity to more bluntly discuss the decision.
For GM, the administration has offered 60 days of operating money to produce more acceptable restructuring plans, while Chrysler has been given a 30-day window to complete a proposed partnership with Italian automaker Fiat SpA. The administration says it will offer up to $6 billion to the companies if they can negotiate a deal before time runs out.
In an interview with CBS' "Face the Nation" broadcast yesterday, Obama said the companies must do more to receive additional financial aid from the government. "We think we can have a successful US auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge - at the other end - much more lean, mean and competitive than it currently is," he said.
In order to receive additional aid to become viable, Obama said the government seeks "set of sacrifices from all parties involved, management, labour, shareholders, creditors, suppliers, dealers. Everybody's gonna have to come to the table and say it's important for us to take serious restructuring steps now in order to preserve a brighter future down the road."
As late as 19 March, Wagoner had said that he had no plans of resigning, but he did step down last night. Although large investors and critics alike had asked for his head in the past, but the steely GM boss held his ground as he thought he knew what ailed GM and gow best to fix it. In this he was also backed by the board of directors of the company.
Wagoner's departure comes as President Obama is scheduled to unveil his plans later today about the status of GM and Chrysler, both of whom have availed government aid in January, in order to stay afloat and stave off Chapter 11. (See: "General Motors gets $4 billion US government loan, Chrysler still in talks / Chrysler receives $4 billion from US treasury)
The loan was subject to both GM and Chrysler submitting restructuring plans to the government by mid-February and demonstrate that they are viable by end-March and able to repay the loans.
The restructuring plan included both automakers negotiating with creditors, bond holders, labour unions and dealers as well as barring shareholder dividends during the duration of the loan period and limits on executive compensation and golden parachutes.
The government also appointed a task force with Steven Rattner, the co-founder of a private equity group, to act as a special advisor on the restructuring of the US auto industry and even appointed bankruptcy specialists to advise them if the need arises for a forced bankruptcy. (See: US auto task force appoints bankruptcy attorney)
But both of them asked the Obama administration for an additional $22 billion - nearly double their original estimate - just to stay afloat beyond the next two months. The two companies have already received $17.4 billion in government handouts
GM, which has already received $13.4 billion, said it will close five more plants in the US and pare its workforce by 20,000 out of 92,000 currently employed in America, while shedding another 27,000 workers in other countries.
It has also put the Hummer and Saab brands on the market and plans to phase out its Saturn brand, while Pontiac will be integrated into the Chevy-GMC line-up.
Chrysler said it will cut 3,000 more jobs while also cutting out models and president and vice-chairman Jim Press said last month that the company would eliminate the Chrysler Aspen, Dodge Durango and Chrysler PT Cruiser.
Both companies have been able in wresting considerable concessions from United Auto Workers union and modify the existing labour contracts, under which GM cuts hourly costs to below those paid by foreign automakers in the US and Chrysler made changes in the labour contract to save $500 million annually.
But the US government feels that GM and Chrysler had not done enough to show that they were viable and therefore eligible for additional funding over the $17.4 billion in December.
The Obama administration may give both the automakers short-term aid in lieu of further cost cuts.
To avoid bankruptcy or Chapter 11 proceedings, the automakers will have to make more substantial cost cuts, reduce their debt by two-thirds, prune the oversized employee pension plan and renegotiate with bondholders and other stakeholders of the company.
The companies are required to show the government they can achieve "positive net present value," which means that the present value of a company's expected net cash flows exceeds the initial investment in the company.
The government feels that in order for Chrysler to become viable, it would not mind loaning the carmaker another $6 billion, if it is able to merge with Fiat, failing which, Chrysler will not receive additional aid.
General Motors, being the biggest of the Detroit 'Big Three', is a bigger headache for the Obama administration. The Auto Task Force wants GM to bring more pressure on the United Auto Workers union and bring the employees pay scales in line with what Japanese auto makers in the US pay their employees.
The government plans to give GM also short-term financial aid for a period of 60 days to restructure the company and would use bankruptcy at the end of the period if it fails to secure concessions from the union, bondholders and stakeholders.
GM's liability to bondholders is approximately $28 billion and about $20 billion to its retiree health care trust fund while Chrysler has to pay approximately $7 billion debt, a large chunk of it owed to banks and $10.6 billion to its retiree health care trust fund.