Thread: GM Wants Taxpayer $ To Merge with Chrysler

GM Said to Seek Treasury Aid in Chrysler Merger Talks (Update6)

By Mike Ramsey, Robert Schmidt and Greg Bensinger
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Oct. 27 (Bloomberg) -- General Motors Corp., the largest U.S. automaker, has asked the Treasury Department for financial aid to help complete a merger with Cerberus Capital Management LP's Chrysler LLC, two people with knowledge of the matter said.

Treasury Secretary Henry Paulson would prefer any funding come from the $25 billion in low-interest loans approved last month for the auto industry to build more-efficient vehicles, not the $700 billion banking-system rescue, said the people, who asked not to be identified because the talks are private.

GM executives have asked Treasury to consider taking a stake in the Detroit-based company, said one of the people, though the government is reluctant to do so.

Federal aid may boost cash for the money-losing automakers while they await merger savings that analysts have said may take months to realize. The U.S. auto market may shrink this year to the smallest since 1993 as the credit crunch and a slowing economy crimp demand.

``These companies are both hurting,'' said Louis Lataif, a former Ford Motor Co. executive who is now dean of Boston University's School of Management. ``Absent government intervention, it's difficult to see how this merger makes sense.''

The Energy Department is working to release $5 billion to GM through the loan program, the Wall Street Journal reported, citing a person familiar with the matter. An agency spokeswoman, Healy Baumgardner, told Bloomberg News that rules for the borrowing are still being developed ``under the 60-day expedited timeframe laid out by Congress.''

White House Response

Dana Perino, a White House spokeswoman, declined to comment today on what federal aid, if any, might be available to help a GM-Chrysler merger.

``Automakers do have financing arms,'' she said at a White House briefing. ``It's possible that some of those financing arms could be a part of the rescue package.''

GM and Chrysler, the third-largest U.S. automaker, aren't commenting on their talks, and neither is New York-based Cerberus. GM Vice Chairman Bob Lutz said today in Detroit there is no timetable for a Chrysler deal, the Detroit News reported. The remark wasn't an acknowledgment of merger talks, a spokesman, Dee Allen, told Bloomberg News.

Credit Rating Cut

Moody's Investors Service lowered GM's credit rating today to Caa2, eight grades below investment quality. GM will run out of cash by mid-2009 without a cash infusion via a federal loan, a capital-infusing merger combined with cost cuts, or the sale or securitization of part of the company, Moody's said.

While Congress approved the automaker-loan program on Sept. 27, money to help convert plants to build more-efficient vehicles may not be available for six to 18 months, and there may be restrictions on how it can be used.

Lawmakers didn't expect the money targeted for retooling factories would go to help in a merger, so such aid ``would be more appropriate for separate legislation,'' said Baumgardner, the Energy Department spokeswoman.

Auto lenders such as Chrysler Financial and GMAC LLC, GM's finance arm might be able to tap the $700 billion Troubled Asset Relief Program. Cerberus owns 51 percent of GMAC and all of Chrysler Financial, which lend to auto buyers as well as to auto dealers to help buy inventory.

GMAC is seeking government assistance through the bailout plan, said Toni Simonetti, a spokeswoman. ``I would call this exploratory,'' Simonetti said yesterday. ``This shouldn't be confused with any financing that GM may be seeking.''

Pressure on Sales

GMAC told dealers earlier this month that access to new liquidity was limited and that it had to tighten lending standards. The result may be fewer buyers able to finance auto purchases, adding to the pressure on GM after an 18 percent slide in 2008 U.S. sales.

Chrysler's 25 percent decline through September is the steepest among major automakers. Auburn Hills, Michigan-based Chrysler, which isn't required to provide financial data, has indicated it had a first-half loss of more than $1.08 billion. GM's losses since 2004 total almost $70 billion.

GM may have to drop its internal Oct. 30 goal for reporting third-quarter results and wait until after the Nov. 4 U.S. presidential election to avoid becoming a political topic before the voting, a person familiar with the company's efforts said.

The automaker may report an adjusted net loss of $2.99 billion, based on the average of 5 analyst estimates compiled by Bloomberg.

GM fell 50 cents, or 8.4 percent, to $5.45 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have lost 78 percent this year, the most of any stock on the 30-company Dow Jones Industrial Average.

Trimming Payrolls

Both GM and Chrysler have been expanding their planned job cuts to save money. Chrysler said last week it will trim 25 percent of its salaried workforce by year's end, or about 4,300 jobs, and GM said its salaried-employee reductions would exceed the previous target of 5,000.

While GM and Cerberus are targeting month's end to complete a deal, the buyout firm and Tokyo-based Nissan Motor Co. also have exchanged proposals about Chrysler, according to people familiar with the matter. Cerberus bought 80.1 percent of Chrysler from Daimler AG in 2007, and is negotiating to acquire the rest.

The failure of Ford or GM could result in the loss of up to 2 million jobs, potentially bringing down hundreds of already weakened auto-parts suppliers and possibly some automakers based overseas, said David Cole, chairman for the Center for Automotive Research in Ann Arbor, Michigan.

GM spokesman Tony Cervone reiterated on Oct. 24 that bankruptcy wasn't an option being considered by the company.

Cole's estimate comes from a preliminary study commissioned by four automotive trade groups. The results were presented to Michigan Governor Jennifer Granholm on Oct. 24.

GM's 8.375 percent note due July 2033 rose 0.5 cent to 26 cents on the dollar, yielding 32.2 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net; Greg Bensinger in New York at gbensinger1@bloomberg.net
Last Updated: October 27, 2008 17:45 EDT

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They're lining up like pigs at the trough.

What else? Banks are using the bailout money, not to lend, but to buy out other banks! The trickle-down theory just ain't working too well.

The automobile of the future will be manufactured by the govenment.

Park your Hummers, the future is the USSR Lada.

Good shot, Dixie. I have had the pleasure of riding in a Lada and it seems that to lighten the weight of the car they left out the shocks. Of course, a lighter weight car is easier to get out of ditch during ice and snow storms, but with the road disrepair in the newly liberated Soviet satellites, it was not a comfortable ride.

Dixie wrote;

The automobile of the future will be manufactured by the govenment.

Anything the Government manages collapses or goes to hell

I agree pj if you want something snafued let the government run it.AND IF YOU HAVE EVER DEALT WITH THE V.A. YOU KNOW WHAT I'M SAYING IS TRUE.