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Auto Task Force Announces Key Findings, Will Back Warranties

March 30, 2009

WASHINGTON — President Barack Obama's auto task force has rejected the recovery plans submitted by General Motors Corp. and Chrysler LLC for the purpose of obtaining further federal aid. Among other changes, the administration has forced the resignation of GM CEO Rick Wagoner, pushed for an alliance between Chrysler and Italian carmaker Fiat SpA and pledged to guarantee manufacturer warranties on new vehicles purchased during the turnaround.

General Motors

The largest of Detroit's Big Three automakers will receive 60 more days' worth of working capital. During that time, the company must revamp its board of directors under new CEO Frederick "Fritz" Henderson, who previously served as GM's COO, and submit a new restructuring plan. To sway Obama's task force, the new plan must include substantial reductions in debt and address issues relating to its manufacturing operations and dealer network.

Chrysler

The task force took a dim view of Chrysler's viability as a stand-alone company, pinning hopes for the privately-held OEM's survival on a strategic alliance with Fiat. The government will extend 30 days of working capital to allow Chrysler and Fiat to come to terms on an agreement and present a new restructuring plan. The revised plan must include debt reductions and further concessions from the United Auto Workers union.

As with GM, the task force suggested as part of its findings that Chrysler consider "utilizing the bankruptcy code in a quick and surgical way."

New-car warranties

As a somewhat surprising addendum to the task force's report, the U.S. government will guarantee manufacturer warranties on new GM and Chrysler vehicles purchased during the recovery phase. Should either or both companies return to viability, they would re-assume those guarantees.

"No one can blame car buyers who shied away form brands that were mentioned in the same breath as the word 'bankruptcy,'" said Philip Reed, Edmunds.com's consumer advice editor. "Now that their warranties are being guaranteed, Chrysler and GM vehicles are good deals which are definitely worth considering."

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