Barack Obama, Auto Bailout

OBAMA FOR USA. In late December 2008, President George W. Bush approved a plan in which $13.4 billion from the $750 billion financial bailout bill was used as emergency loans to keep General Motors and Chrysler afloat. Both companies were required to submit recovery plans in mid-February and to meet tough conditions, including striking cost-cutting deals with unions and bondholders, to qualify for further assistance.

Mr. Obama's first decision about the auto industry was that he would be the central player in the debate. He had been widely expected to choose a "car czar,'' whose job it would be to push through the deals needed to make the two ailing carmakers viable. (Ford, while suffering from the same downturn in sales, had declared that it had enough cash in reserve to survive without government help, so long as a bankruptcy by one of its competitors did not further unsettle its supply chain.) Instead, Mr. Obama appointed a car industry task force, led by Steven R. Rattner, a New York investment banker.

Mr. Obama's next surprises came at the end of March, the deadline set by Mr. Bush for action to clear the way for a second round of loans. On March 29, Mr. Obama forced the resignation of G.M.'s chairman, Rick Wagoner, and the next day he rejected both companies' recovery plans.

G.M. was told that it has 60 days to complete agreements to reduce its debt to bondholders by two-thirds, and to finalize a deal with the U.A.W. about shifting some health care costs to the union.

The White House task force on the crisis made clear that G.M. would have to cut far more than the 47,000 jobs it promised to lose in the plan submitted in February, would have to cut more brands and might even be broken into pieces, spinning off its promising international division from the struggling North American operation, which is essentially broke.

Chrysler, which the auto task force concluded was no longer viable as a stand alone company, was given 30 days to complete its planned partnership with Fiat. It, too, was told to take a harder line with creditors and its unions, though its bondholders initially rejected the Treasury Department's proposal that they accept 15 cents on the dollar for their Chrysler debt.

Smaller banks and hedge funds balked at an agreement to accept $2 billion in cash to eliminate about $6.9 billion in secured debt by April 30 to enable Chrysler to avert a bankruptcy filing, and were harshly criticized by the president. The auto company filed for bankruptcy on April 30 and planned to enter into an alliance with the Italian automaker Fiat. The judge overseeing the bankruptcy took a significant step toward allowing the sale of most of the automaker to Fiat, approving the bidding procedures advocated by the company and backed by the Obama administration.

G.M., facing its June 1 deadline to cut debt and expenses or else file for bankruptcy protection, said on May 7 that it lost $6 billion in the first quarter. G.M. said it depleted $10.2 billion from its cash reserves in the quarter, or $113 million a day, leaving the company with $11.6 billion as of March 31. That is roughly the minimum amount of liquidity needed to keep G.M. in business, the automaker has said. Fritz Henderson, who took over running the company after the Obama administration forced Mr. Wagoner to resign, said bankruptcy is a probable outcome but one that executives still hope to avoid.

Avoid it they could not. General Motors filed for bankruptcy on June 1, and President Obama marked the day, the lowest point in General Motors' 100-year history, by barely mentioning it and instead focusing his remarks on the second chance G.M. will have to become a viable company with more government aid. After G.M.'s factory closings, it will have only 12 in Michigan and fewer than 40,000 workers building cars in the United States -- one-tenth of a work force that in the 1970s numbered 395,000 people.

The White House and G.M. hope a speedy trip through bankruptcy, in 90 days or fewer, will limit further damage to the company, its employees, dealers and suppliers. The plan from the president's auto task force calls for G.M. to receive $30.1 billion in federal aid, in addition to the $19.4 billion it has already received. The governments of Canada and Ontario will contribute $9.5 billion more. The U.S. government is to have a 60 percent stake in the "new G.M."

While Mr. Obama will most likely come under extraordinary pressure to sell the government's 60 percent stake, his own auto task force has warned him that the exit strategy could be messy: the faster the government sells its stake to private investors, the less it is likely to recover its investment of more than $50 billion. And the longer the government holds on to its stake, the longer the pressures will build, from Congress and elsewhere, to intervene.

On June 10, with the touch of pen to paper and a simple wire transfer, Chrysler completed its deal with Fiat, largely ending its quick trip through bankruptcy.

The last obstacle to an exit -- a temporary stay imposed by the Supreme Court -- was lifted late on June 9, after the nine justices declined to hear a challenge of the deal by three Indiana state funds and several consumer groups.

The wire transfer, from the federal government, gives Chrysler $6.6 billion in exit financing.

The General Motors bankruptcy process was completed on July 10, when G.M. sold its good assets to a new, government-owned company. Brands like Chevrolet, Cadillac and GMC will be folded into the new company - now named Vehicle Acquisition Company but soon to be renamed the General Motors Company. The federal government will hold nearly 61 percent of the new company, with the Canadian government, a health care trust for the United Auto Workers union and bondholders owning the balance.

The new company will be much smaller, with brands like Saturn, Hummer, Opel and Pontiac in the process of being sold or closed. It will also have a smaller sales network, with thousands of dealers having been cut during the reorganization. Its market share has also fallen to 20 percent, as rivals have profited from its troubles, down from 51 percent at the peak of the company's dominance. Its sales outside the United States now almost equal its domestic sales.