Obama cautions auto industry

Wants change, says CEOs who misuse loans should go

President-elect Barack Obama answered questions on the economy yesterday in Chicago after introducing retired Army general Eric K. Shinseki as his choice for secretary of veterans affairs. (Ralf-Finn Hestoft/Getty Images, Pool)

WASHINGTON - President-elect Barack Obama said yesterday that top executives at the nation's three automakers should be replaced if they don't use pending government loans to make major changes - including taking immediate steps to produce energy-efficient vehicles - in a clear signal that he expects a bailout to be predicated on a wholesale restructuring of the industry.

"We have to have an auto industry that understands they can't keep on doing things the same way," Obama said at a news conference in Chicago. "If this management team that is currently in place doesn't understand the urgency of the situation, and is not willing to make the tough choices and adapt to these new circumstances, then they should go."

Obama did not single out any of the automakers. But the chairman of the Senate Banking Committee, Democrat Chris Dodd of Connecticut, said earlier in the day that he believes Rick Wagoner, the CEO of General Motors Corp., which is in worse financial shape than Ford Motor Co. or Chrysler LLC, "has to move on."

"You've got to consider new leadership," Dodd said on CBS's "Face the Nation."

GM spokesman Steve Harris said he didn't interpret Dodd's comments as making Wagoner's exit a condition for aid, add ing that the company management, employees, and dealers "all feel like Rick is the right guy to lead us at a difficult time."

Obama fielded a series of questions about the economy after introducing his nominee to be secretary of the Department of Veterans Affairs, retired Army general Eric K. Shinseki. The choice of Shinseki, a decorated Vietnam veteran who lost part of a foot in combat and rose through the ranks to become the first Japanese-American promoted to four-star general, marked a highly symbolic break with the Bush administration.

Shinseki was forced to retire early as Army chief of staff in 2003 after he was rebuked by his civilian bosses for testifying to Congress a month before the invasion of Iraq that the United States would require "several hundred thousand" troops to pacify the country and predicted that the war would ignite "ethnic tensions."

"He has always stood with our troops," Obama said yesterday, with Shinseki standing at his side. "And he will bring that same sense of duty and commitment to ensuring that we treat our veterans with the care and dignity that they deserve."

Addressing his fellow veterans, Shinseki pledged that if he is confirmed by the Senate he will "work each and every day to ensure that we are serving you as well as you have served us."

Obama's stern message yesterday to automakers, who are awaiting congressional action this week on a multibillion-dollar "bridge loan," also came with a warning that the American economy faces further hardship - even as he laid out some of his goals for a recovery plan that he said will provide a "blood infusion" to the ailing economy. "Things are going to get worse before they get better," Obama said in a taped interview broadcast yesterday on NBC's "Meet the Press."

But Obama, who takes office Jan. 20, also expressed confidence that the investment package he is drafting with his economic team - which will include the largest public works program since the 1950s and major new investments in schools, alternative technologies, and high-tech communications - will help turn around the economy next year and lay the groundwork for longer-term growth. "Not only can we get the economy back on track, but we can emerge leaner, meaner, and ultimately more competitive and more prosperous," he told reporters.

While he did not give a dollar figure for the economic stimulus under consideration, he insisted that those investments must be subject to stronger financial regulations, including stricter monitoring of the banking industry. He also expressed disappointment that the Bush administration has not taken more forceful steps to address the home mortgage crisis. He said banks should be encouraged to renegotiate mortgages and a moratorium should be placed on home foreclosures as part of any overall recovery plan.

Obama also had a warning for Congress, insisting that he wants the forthcoming economic recovery package to make the best possible use of taxpayer dollars, not enrich powerful interests.

An early test of Obama's promises is likely to be how the auto industry uses the expected government help to avoid bankruptcy. He said that while he supports a $15 billion to $17 billion emergency bailout proposal on the table, the Big Three carmakers must use the money to fashion a sustainable business plan.

"What we have to do is to provide them with assistance but that assistance is conditioned on them making significant adjustments," he said. "They are going to have to restructure and all of their stakeholders are going to have to restructure," including "making sure that they're retooling for energy efficiency," Obama said.

The Big Three chief executives told congressional committees last week that they planned significant restructuring aimed at improving productivity and shifting production to more energy-efficient vehicles.

It remained unclear whether Congress would return in a special session this week to act on emergency assistance, or if action would have to await the next Congress in January.

Material from the Associated Press was included in this report. Bryan Bender can be reached at bender@globe.com.