Obama gets tough on US car industry

Barack Obama yesterday condemned “a failure of leadership” from Washington to Detroit for the decline of the US car industry and demanded new sacrifices from debtholders, unions and executives at General Motors and Chrysler in return for fresh bail-out money.

The US president, adopting a more interventionist approach, yesterday announced tax incentives for new car purchases and said he would support so-called “cash for clunkers” legislation, which has stimulated the German car market with incentives to trade in old cars.

But Mr Obama said that his auto taskforce, which was set up to study the companies' request for an additional $21.6bn of government funds, had decided that neither of them had gone far enough in cutting debt or benefits to workers and that no money would be given without more fundamental reform.

GM, whose chief executive Rick Wagoner on Sunday stepped down under pressure from the White House, has 60 days to come up with a tougher restructuring plan in return for more government support. Both companies will receive working capital before the deadlines.

Mr Obama extended a 30-day window to Chrysler to reach a partnership deal with Fiat in return for up to $6bn of additional taxpayer money. Chrysler, controlled by Cerberus Capital Management, said yesterday that it had reached a deal with the Italian carmaker although there were still “hurdles”.

The increased threat of bankruptcy at GM and Chrysler contributed to a steep fall in US share prices, choking off a rally that had prompted talk that the stock market might be bottoming out and which had helped lift the political fortunes of Tim Geithner, Treasury secretary.