World and Nation

President Gives U.S. Automakers a Short Lifeline

President Barack Obama delivered an ultimatum to General Motors and Chrysler on Monday, telling them to adopt radical changes in short order or face bankruptcy — a move that came after a series of somber discussions in which he concluded that a controlled bankruptcy might be the best way to reorganize the two ailing auto giants.

In the end, Obama decided to throw the companies a short lifeline. He gave GM 60 days and Chrysler one month to avert bankruptcy and restructure on their own.

But during that period, Obama warned on Monday, the automakers will have to radically reshape their businesses in a way that experts say will severely shrink them.

For GM, Obama’s decision means not only the loss of its chief executive, Rick Wagoner, who was forced out as part of the deal, but also some tough negotiations with the United Automobile Workers and bondholders, who have thus far balked at the company’s demands.

Now the union will be asked to make even bigger concessions on a new wage and benefits contract and health benefits for retirees. The bondholders will most likely be forced to accept a deep discount on the price of their debt as well as agree to take GM stock in lieu of debt repayments.

Chrysler, meanwhile, must hurry up a merger deal with the Italian automaker Fiat.

The Obama administration has concluded that Chrysler is not viable as a stand-alone company, and is giving the automaker until April 30 to complete the Fiat merger or face a cutoff of taxpayer help.

Obama decided early on that simply letting the companies fail was not an option, advisers said. But faced with what one senior official called “no good options,” the president struggled to reconcile his conclusion that GM and Chrysler were not viable with his determination to save an industry that he called “an emblem of the American spirit.”

While Michigan lawmakers privately balked at Obama’s decision to cite bankruptcy, they said that by raising the specter of bankruptcy for the two companies, Obama might have made it easier for both to win concessions.

“They hopefully will see that they have a pretty stark choice in terms of working something out,” said Sen. Carl Levin, a Michigan Democrat, who learned of the plan Sunday night when the president called him and other Michigan lawmakers from the Oval Office. “Their option is either to take a haircut or a bath.”