The Obama Administration delivered a harsh verdict on the futures of G.M and Chrysler, calling for strong medicine before additional federal funding is provided. The Administration dismissed the current version of both companies plans for viability, saying that neither would produce profit making companies. The Obama Administration also boldly mentions the potential for supporting bankruptcy for the companies. That is a tough shot across the bows of the companies. As has been clear for some time the numbers just don’t add up. And it has been a truly fatal flaw across the United States that when the numbers do not add up we simply ignore the numbers, and hope for the best. That was the essence of the G.M. and Chrysler plans for viability.

Chrysler has been called a company that cannot continue to exist as a stand alone entity. The Government documents make clear that Chrysler has a very limited time to reach a deal with Fiat, and failure to do so will result in a Chrysler bankruptcy filing. The U.S. Government will provide no additional funding outside the scope of such an agreement.

General Motors is seen as more likely to survive, but the Government analysis of General Motor’s own plan showed how outlandish the G.M. numbers are. The Government raises the possibility of bankruptcy for G.M., and makes the promise of standing by G.M. warranty wise should negotiations with important stakeholders fail.

The best path to achieve this may well be an expedited,court-supervised process to extinguish unsustainable liabilities, should an out-of-court restructuring not be possible. The Administration is prepared to stand by GM throughout this process to ensure that GM emerges with a fresh start and a promising future. Consumers thinking about buying a GM car and workers and communities that depend on this iconic American company should have confidence that GM can and will come out of this crisis as a stronger, leaner and more competitive car company.

The basis of the prospect of bankruptcy flows from the existing G.M. plan and its underlying assumptions, which the Government cuts to shreds.

While GM has made progress in its turnaround to date,GM’s current plan will not result in a healthy company that is meaningfully cash flow positive in a normalized business environment and thus able to support its operations and obligations without continued government support. (A summary of the Administration’s findings is provided separately).

The Government, in addition to moving CEO Wagoner, announced its intent to replace up to half of the G.M. Board. Long overdue.

I have attached the G.M. and Chrysler viability sheets released by the Government, as well as the overall release. Tough medicine from the Obama Administration. The President will speak at 11:00 a.m. this morning.

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