GM and Chrysler, Near a Deal, Press for Federal Aid

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The San Diego Union Tribune / Zuma

Chrysler 300s on the McCune Chrysler Jeep lot in San Diego

General Motors Corp. is pressing the Bush Administration for more than $10 billion in immediate government assistance, which would help shore up its tattered balance sheet and provide the cash required for a takeover of ailing Chrysler. The two companies are already close to a deal that would put GM in control of Chrysler. That would leave Chrysler boss Robert Nardelli, brought in to save the company, out of a job. "We can acknowledge that we have been in contact with a variety of federal officials for some time during this extraordinary and difficult economic period," said GM spokesman Tom Wilkinson. "We have said publicly, in comment to the Michigan [congressional] delegation's call for support of the industry, that we believe the Federal Government should consider all of the tools available to it — some recently enacted — to support industries that are in distress and that are essential to the U.S. economy," he said. On Thursday, those efforts got another boost as Governors from six states — Delaware, Kentucky, Michigan, New York, Ohio and South Dakota — submitted their own letter in support of the industry's aid request.

One key issue is whether the money will come from $25 billion in loan guarantees Congress approved in September specifically for the automakers and their suppliers or from the $700 billion in federal assistance that Congress approved to bail out struggling banks. GM wants the money to come from the $700 billion and to save the $25 billion to pay for new vehicle development, noted Sean McAlinden of the Center for Automotive Research in Ann Arbor, Mich.

Wilkinson declined to say whether GM chairman Richard Wagoner, a frequent White House guest in the past, had met with Bush or other top Administration officials while pressing for government assistance.

Rumors that GM is preparing to file for bankruptcy swept through the company's plants this week. "I'm hearing they're not going to be able to meet payroll by spring," one employee at a GM assembly plant near Detroit said. GM, however, said speculation it was nearing bankruptcy is not true. "Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers, and we believe speculation about a possible filing is exaggerated and unconstructive," GM said in a statement.

Getting the federal money, however, might be only half the battle in a GM-Chrysler merger. Sources who have been briefed on the private discussions about the merger have indicated Cerberus LLC, the New York City–based private-equity firm that owns 80% of Chrysler, would want a significant stake in any company that emerges from the deal. That would include a number of seats on the board and a voice in deciding who actually manages the new company.

GM executives have been highly resistant to Cerberus' demands for a larger management role in the merged company. "I thought this was supposed to be an acquisition," said one senior GM official. "There haven't been any discussions about governance. Why would Rick Wagoner negotiate himself out of a job?"

But first things first: Why would a merger even be worthwhile? "I haven't talked to one person who thinks this would work," said Rebecca Lindland of Global Insight. "Both companies would probably be better off taking the government money and going their own way," she said.

Meanwhile, Chrysler plans to cut 25% of its 18,000 nonunion salaried workforce before Christmas. In an e-mail to employees, Nardelli said the layoffs would be handled as humanely as possible as he urged employees to retire or accept buyouts. Cash for the buyouts will apparently come from the $11 billion in reserves the company had on hand at the end of the summer. "The combination of troubled financial markets, difficult credit, volatile commodity prices, the housing crisis and declining consumer confidence continue to weigh on the economy," Nardelli said.

Chrysler also confirmed it plans to halt production of its first hybrid vehicles by the end of December, even though it already has orders for 3,000 Dodge Durango and Chrysler Aspen hybrids. It's not clear at this point whether Chrysler will be able to fill the orders for the hybrids before the assembly plant in Newark, Del., where they are built shuts permanently, a Chrysler spokeswoman said. Roughly 5,000 salaried employees at GM also are expected to leave the company payroll by week's end as part of a series of cutbacks announced in July.