GM expected to seek federal funds to salvage acquisition of Chrylser BY TOM KRISHER AND KEN THOMAS The Associated Press
DETROIT — Like much of middle America, Mike McCarthy doesn’t think taxpayers should have to pay $700 billion to bail out Wall Street. The second-shift worker at a Chrysler engine plant also doesn’t think the government should pay to save his own company, although he’s a lot less sure about that one. McCarthy would like to see Chrysler’s jobs and pensions preserved, but that directly confl icts with his opposition to a bailout. His dilemma is one that could soon be facing every member of the U.S. House and Senate. Talks toward General Motors Corp.’s possible acquisition of Chrysler LLC may involve going to Congress for cash, according to a person involved in the financing discussions. The person, who asked not to be identified because the talks are private, said he was unsure if the government has been approached yet. Cash-desperate GM is said to be interested in Chrysler fi rst for its pile of money. Chrysler, whose sales have dropped 25 percent during the first nine months of the year, reportedly has about $11 billion available. It also has debt, but the amount isn’t available because Chrysler is a private company, 80.1 percent owned by the private equity firm Cerberus Capital Management LP. But the cash may not be enough for GM to take on money-losing Chrysler, and that’s where Congress may become part of the negotiations. Without additional money, GM may be unwilling to acquire Chrysler, which would add factories, brands, models, dealers and employees to GM, which already is too big for its sales. Cerberus also is shopping Chrysler to the combined Nissan Motor Co. and Renault SA as it tries to exit the auto business. Industry analysts say Congress may be interested in kicking in cash because if Chrysler goes into bankruptcy, the government could be forced to take on the pension costs for the Auburn Hills-based company’s 124,924 retirees and spouses. Congress may also want to preserve as many of Chrysler’s 49,000 U.S. jobs as possible. While it may be a hard sell in Washington, Sen. Carl Levin, DMich., said in a debate Monday in Detroit that government may need to step in. “If they need support to make some kind of a merger between Chrysler and another auto company happen, we clearly ought to do that,” said the longtime advocate for the industry. “No other country in the world would stand by and watch major corporations go under this way without trying to do something about it.” Republican Rep. Thaddeus McCotter, who represents a suburban Detroit congressional district, said any government role in a deal was premature, but the United Auto Workers, a key constituency for majority Democrats, would be critical to any action by Congress. UAW President Ron Gettelfinger has expressed worries that a GM acquisition of Chrysler would lead to massive job losses. “The reality is … Gettelfinger and these guys are saying they don’t think a merger is the best thing,” McCotter said. “How do you do anything in a Democratic Congress, and it looks like it will stay a Democratic Congress, if the UAW is telling you that this is not good for jobs in America?” With automakers unable to borrow in the frozen credit markets because of poor ratings, and unable to offer equity due to already depressed stock prices, analysts say it’s almost inevitable that automakers would ask the government for help beyond the $25 billion in loans Congress approved last month for new fuelefficient technology. “With or without the acquisition, the industry will be turning to the federal government to boost their liquidity over the next 12 months,” said Fitch Ratings analyst Mark Oline. Next, Oline said, would be somehow restructuring the automakers’ obligations to a UAW-administered health trust fund that will take on billions in retiree health care costs starting next year. The union already has let GM defer $1.7 billion in payments to the trust in exchange for 9 percent interest on the money. GM has said it will have to pay up to $33.7 billion into the trust, although some of that is already sitting in existing trust accounts. Gettelfinger has said the union isn’t willing to accept more delay in the trust payments. Detroit-based GM is burning up more than $1 billion per month, with several analysts predicting it will reach its minimum operating cash level of $14 billion sometime next year. GM’s sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, although much of that comes from noncash tax accounting changes. GM has pledged to raise $10 billion through cost cuts and another $5 billion through asset sales and borrowing as it tries to outlast a U.S. auto sales slump that could run into 2010. The company says it’s on track with the operational part of that plan. Both GM and Chrysler have had to deny bankruptcy rumors in recent weeks, saying consumers won’t buy cars from a company that looks like it could go out of business. The deal being discussed calls for Cerberus to hand over Chrysler in exchange for GM’s 49 percent stake in GMAC Financial Services. GM sold a 51 percent stake in its finance arm to Cerberus in 2006. Cerberus also would get an equity stake in GM, hoping to get a good return should GM recover when U.S. auto sales bounce back from a serious slump.
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