While you were sleeping: Obama's ultimatum to automakers

Tuesday 31st March 2009

US President Barack Obama warned automakers General Motors and Chrysler that they have one final chance to restructure or they will be allowed to fall into bankruptcy.

The Obama administration forced GM chief executive Rick Wagoner to resign and pressured Chrysler to form an alliance with Fiat as a condition of ongoing federal aid

"We cannot continue to excuse poor decisions," Obama said at a media conference in Washington. "We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars."

GM's chief operating officer Fritz Henderson becomes new CEO and the automaker is replacing most of its board. The government edicts stem from findings of the auto task force.

Bankruptcy, if required, would be used to wipe out debt, leaving the automakers smaller and leaner, Obama said.

He named Edward Montgomery, a former official at the US Labor Department, to oversee the provision of federal resources to autoworkers and the communities where they live to help support those "that rely on our auto industry."

GM will offer incentives for buyers of its cars, including compensation for lost resale value and a no-penalty option for customers to return cars if they lose their jobs, Bloomberg reported. Chrysler CEO Robert Nardelli will keep his job.

GM shares tumbled 25% to US$2.70, leading the Dow Jones Industrial Average down 3.3% to 7522.02. The Standard & Poor's 500 Index dropped 3.5% to 787.53 and the Nasdaq Composite fell 2.8% to 1501.80.

Bank of America fell 18% to US$6.03 and Citigroup declined 12% to US$2.31, leading financials lower after US Treasury Secretary Timothy Geithner told ABC News's 'This Week' programme that some banks will need "large amounts of assistance."

Alcoa fell 14% to US$6.69, leading metals related companies lower, on concern about the automakers and after
Aluminum Corp. of China said 2008 profit slumped almost 100% and forecast a first-quarter loss.

Freeport-McMoRan Copper & Gold fell 8.5% to US$38.53.

The Reuters/Jefferies CRB Index of 19 commodities fell about 3% to 215.17.

Copper futures for May delivery fell 3.8% to US$1.766 a pound on the New York Mercantile Exchange, the biggest drop in more than a month.

Crude oil fell amid concern demand for fuel will wane.
Crude oil for May delivery fell 7.5% to US$48.45 a barrel on the New York Mercantile Exchange.

Gold for June delivery was little changed at US$915.80 an ounce in New York.

The US dollar and the yen gained as the stocks slump and US automaker fears drove investors to the safest currencies.

The yen strengthened to 97.20 per dollar from 97.86 and gained to 128.34 per euro from 130.04. The dollar climbed to $1.3201 per euro from $1.3287.

In Europe, confidence among executives and consumers fell to a record low this month, heralding a slew of weaker data across the region.

The confidence gauge for the euro region slipped to 64.6 from 65.3, according to the European Commission.

Spanish consumer prices fell 0.1% this month from a year earlier, the first annual decline in more than 45 years, according to the National Statistics Institute.

The World Bank said Russia's economy may contract by 4.5% this year on sliding prices for oil and the effects of the global slump.

"Initial expectations that Russia and other countries will recover fast are no longer likely," the World Bank said in a report.

Ireland lost its top credit rating at Standard & Poor's in the face of rising budget deficits and borrowing costs.

The credit ratings company lowered Ireland's rating to AA+ from AAA and put the outlook on 'negative,' indicating it may reduce the rating again.

Financials led the Dow Jones Stoxx 600 down almost 4% to 1750.89. Barclays tumbled 14%, ING Groep fell 13% and Royal Bank of Scotland slid 12%. Deutsche Bank declined 12% and UBS Ag slipped 11%

Steelmaker ArcelorMittal fell 10% and Anglo American dropped 9.5%. In London, the FTSE 100 fell 3.5% to 3762.91 and Germany's DAX 30 tumbled 5% to 3989.23. In France, the CAC 40 fell 4.3% to 2719.34, as Credit Agricole declined 13%, Dexia fell 12% and BNP Paribas slid 9.6%.

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