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GM efforts to get assistance for merger hit snag
Treasury no longer talking about aid


BY JUSTIN HYDE and TIM HIGGINS • FREE PRESS BUSINESS WRITERS • October 30, 2008


The U.S. Treasury Department, armed with a $700-billion fund to help salvage the economy, is no longer talking to automakers about possible aid, further complicating efforts by General Motors to seek help for a merger with Chrysler, the Free Press was told today.
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"The Treasury is not negotiating with automakers," a Bush administration official said late today. It's not known why the Treasury stopped talking, but GM and other automakers are now turning to other parts of the administration for financial assistance.

Treasury is skittish about the idea of pumping billions of taxpayer dollars into a merger resulting in tens of thousands of job losses, people briefed on the matter said.

Treasury officials have been stretched in recent weeks, managing the $700-billion rescue of the financial industry, including taking stakes in several banks.

Chrysler owner Cerberus Capital Management and GM have been in talks for weeks to merge the two automakers, but the deal is being held up by financing. Such a merger likely would lead to 90,000 job losses at Chrysler and suppliers, according to a report released today.

"The biggest problem they have right now is the government's participation. The government does not want to participate on a merger basis," a person briefed on the talks said.

Also today, Democratic presidential nominee Barack Obama said he wants to meet with leaders of the Detroit automakers and the UAW if elected, and auto dealers asked Congress to help their struggling businesses.

With the current state of GM's troubled finances, the automaker's urgent pursuit of government help presumably would be occurring with or without the specter of a Chrysler deal hanging in the air. GM has been seeking up to $10 billion in aid from federal officials.

GM wouldn't comment for this report.

The industry's efforts have moved to the U.S. Commerce Department, and it increasingly looks like any help for the auto industry is going to have to come from the $25-billion low-interest loan program under the Energy Department, sources said.

"The administration is working to get the $25 billion Congress approved to the industry quickly," an administration official said.

The rules for the loans aimed at retooling plants could be ready as soon as next week, with money flowing to the automakers by early next year, officials have said. Automakers and the UAW plan to ask Congress to put an additional $25 billion into the program and perhaps broaden the rules covering the loans so that they can be used for a variety of costs.

U.S. Rep. Candice Miller, R-Harrison Township, said Congress should consider any moves necessary to speed the loans if it convenes in a lame-duck session after the election. Democratic leaders have discussed a possible economic stimulus bill that could carry such changes, but opposition from the Bush administration could push action off until next year, especially if Democrats make large gains in their majorities next week.

Michigan Gov. Jennifer Granholm and five other state governors have sent a letter urging Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to take "immediate action" to help the automotive industry. "The financial well-being of other major industries and millions of American citizens are at risk," said the letter, dated Wednesday.

Granholm, in an interview with reporters, acknowledged the sour mood unsettling Michigan and its automotive industry because of merger talks between GM and Chrysler. "I think people are moving very fast, but I don't know" details of the talks, Granholm said. "We know the auto industry is changing."

Under the $700-billion bailout plan passed earlier this month, the Treasury has the power to buy loans from auto finance companies such as GMAC and Ford Credit.

The idea that more jobs might be at risk if a merger doesn't occur is picking up steam among industry observers.

"Chrysler as we know it will cease to exist very soon," said Kimberly Rodriguez, principal of Grant Thornton's automotive practice. "At this point, there are very few options available to either company. We believe a transaction between GM and Chrysler is likely because it would be the most expedient way to protect cash and jobs at both companies."

The problem is cash, and both companies appear to be running out.

GM lost $18.8 billion in the first half of this year. The automaker is burning through more than $1 billion in cash a month, and analysts predict it could run out sometime next year.

Chrysler has indicated it lost more than $1 billion during the first half of 2008 and had $11.7 billion in cash on hand at the end of June. Grant Thornton's report estimated that Chrysler is burning through $1 billion a quarter and could run into a cash shortage sometime next year.

A GM-Chrysler merger would need assistance, Rodriguez said.

"There has to be additional cash from outside sources, whether that's from the government, whether that's from existing stakeholders or some combination. Clearly I think there is insufficient cash that exists on the two balance sheets separately," she said. "That's what really all of the activity has been about over the last few weeks, really trying to get to a cash level so that they do have the runway" to get things accomplished.

A merger between GM and Chrysler could eventually result in estimated savings of $6 billion to $10 billion, her study said. Most of those cost savings could be found in corporate functions, such as purchasing, engineering and research and development, and mean up to 40,000 Chrysler jobs could be cut. In addition, she said, 50,000 supplier jobs could be eliminated because of a merger.
Obama wants to talk

Obama pledged Thursday to meet with the leaders of Detroit's automakers and the UAW "immediately" if elected. In an interview aired on NBC's "Nightly News" with Brian Williams, Obama said that help for the industry would have to be tied to building more efficient vehicles.

Obama didn't address the possibility of a GM-Chrysler merger in excerpts released by NBC but did say "we do need American cars."

"The notion that we can't compete in an industry that we created I think is, you know, unacceptable," Obama said.

Obama has said he backs doubling the $25-billion loan program.

His rival, Republican John McCain, has said he favored moving the first $25 billion in loans to the industry before providing more. The UAW has endorsed Obama and criticized McCain for his stance toward the industry.
Dealers ask for help

The nation's 19,700 auto dealers asked the Bush administration and Congress today to consider a broad stimulus plan for boosting auto sales and helping dealers survive the worst market in over a decade.

In a letter hand-delivered to the White House, the president of the National Automobile Dealers Association said the economy would continue to decline should auto sales remain depressed. Car and truck sales account for about 20% of U.S. retail sales, and auto dealers are typically the largest collectors of sales taxes for state and local governments.

NADA said such a plan could include tax credits for vehicle buyers, reviving the tax deduction on interest from vehicle loans eliminated by Congress in 1986 and paying people to trade in older models. The association also suggested reviving a loan guarantee program for dealers.

Contact TIM HIGGINS at 313-222-8784 or [email protected]. Business writers Sarah A. Webster and Brent Snavely contributed to this report.
 

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Reading the above...Also going off memory about GM and Chrysler.

Above they said chrysler wont be around long if GM doesn't buy them. But they said at the end of june, chrysler had 11 BILLION cash and going through a billion per QUARTER. So I see chrysler lasting about 2.5 years.

GM is going through over a billion a MONTH and last I heard they had enough cash to make it till june of 2009.

So exactly HOW is gm buying chrysler GOOD??? Sounds like chrysler will be bailing out GM and not the other way around.

Its nearly as bad as when Benz bought chrysler. Chrysler had like 500 million in reserve cash for a down turn in the economy. Benz took that 500m and used it to buy chrysler. Then spent the next 3 years talking about the "troubled chrysler group" then cut the company to shreads...then sold it when the couldn't turn a good enough profit.

Why can't chrysler just be left alone?? They were "building to be the best" and in some lines out selling ford and gm (minivan). If Lutz hadn't delivered chrysler to benz for that cool 100 million under the table, then chrysler might have been in better shape than any of the car companies today.
 

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More Socialism is what all this is, but hey that is the rage today.

I can understand why GM is in trouble, their cars and especially their trucks are just plain butt ugly IMO.

Chrysler IMO is making the best looking cars and trucks right now. It all comes down to people just don't have the extra cash to be buying big ticket items right now.
 
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