General Motors Corp, the largest US 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 the 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 US 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."
Tony Fratto, a White House spokesman, declined to comment on any federal role in merger talks. GM and Chrysler, the third-largest US automaker, aren't commenting on their discussions, and neither is Cerberus, the New York-based buyout firm managed by investor Stephen Feinberg.
The automakers have estimated that a combination would need $10 billion in new equity to shut plants, cut jobs, integrate operations and add liquidity, the Wall Street Journal reported, citing people involved in the talks or briefed on them.
Loan program
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.
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. "This shouldn't be confused with any financing that GM may be seeking."
Source: China Daily/Agencies
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