Obama Ousts GM Chief, Requires Better MPG Standards

March 30, 2009

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Increasingly putting its stamp on the U.S. auto industry that has sought bailout funds, the Obama Administration has forced an earlier-than-expected resignation by General Motors chief Richard Wagoner.

And as a condition of receiving further bailout funds, the government is pushing Chrysler toward a partnership with Italy’s Fiat. Obama’s auto industry task force released a report March 29 that concluded Chrysler could not continue to exist as a stand-alone company, according to the New York Times. Chrysler will receive operating funds for 30 days to conclude a deal with Fiat. If it does not reach a deal, the government would push for a “quick and surgical” bankruptcy reorganization, according to the Associated Press.

GM is receiving 60 days of further financing, after which point it may also be subject to the same criteria of “quick and surgical” bankruptcy. The government is calling on GM stakeholders such as unions and boldholders to make sacrifices.

The flurry of activity comes along with the March 27 announcement that the government is upping the standard for miles per gallon. By the 2011 model year, the government aims for compacts, sedans and other passenger cars to achieve an average 30.2 miles per gallon in combined city/highway driving, according to Reuters. That is a boost from the 27.5 mpg standard established in the late 1970s under the Corporate Average Fuel Economy (CAFE) program. The light truck standard rises to 24.1 mpg.

The auto industry estimates the moves will cost it cost nearly $1.5 billion and cost consumers an average $64 for cars and $126 for light trucks, according to the Detroit News.

Still, the Obama Administration says the new standards would offer consumers nearly $2 billion in overall benefits, including reduced fuel costs. With all the possible bankruptcies, the government is pledging to stand behind any existing GM or Chrysler warranties,

As an additional incentive to boost consumer spending on autos, the government will use parts of the economic stimulus package to offer consumers a “generous benefit” for trading in older inefficient vehicles for newer, more efficient ones, according to AP.

The move would save nearly 900 million gallons of fuel while, over the lifespan of 2011 model year vehicles, reducing carbon dioxide emissions by 8.3 million metric tons, according to the Transportation Department.

By 2020, Congress is requiring U.S. cars and light trucks to average 35 mpg, which is 40 percent higher than today’s average, according to Reuters.

The auto industry is responding with trepidation to Obama’s demands. A GM dealers group plans a conference call March 30 to discuss its reaction, according to CNN/Money.com.

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