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GM, Chrysler request $10 billion in US aid

(Agencies)
Updated: 2008-10-28 13:51

NEW YORK/DETROIT -- General Motors Corp and Cerberus Capital Management have asked the US government for roughly $10 billion in an unprecedented rescue package to support a merger between GM and Chrysler LLC, two sources with direct knowledge of the talks said on Monday.

Chrysler auto assembly workers leave the plant after their shift ends at the Chrysler Warren Truck Assembly in Warren, Michigan, October 14, 2008. [Agencies]

The government funding would include roughly $3 billion in exchange for preferred stock in the merged automaker, according to one of the sources, who was not authorized to discuss the matter publicly.

The US Treasury Department is considering a request for direct aid to facilitate the merger and a decision could come this week, sources familiar with the still-developing government response said earlier on Monday.

An injection of $3 billion in equity to support a GM acquisition of Chrysler would be roughly equivalent to the current, depressed value of the top US automaker.

It would also give US taxpayers a large stake in the turnaround of a struggling auto industry that employs over 350,000 American workers and is credited with supporting employment for another 4.5 million in related fields.

Analysts see GM, Chrysler and rival Ford Motor Co having been driven to the brink of failure by a combination of management missteps, slowing global growth and problems in credit markets.

In addition to its equity stake, the US government is also being asked to provide support for the GM-Chrysler merger by taking over some $3 billion in pension obligations under the terms of a proposal now before the government for review, the first source said.

The final component of the proposed support package would be a credit line that could include US government purchases of commercial paper issued by GM to relieve short-term pressure on liquidity, the person said.

A combined GM-Chrysler would control roughly a third of the US auto market by sales and would face immediate pressure to cut costs stemming from excess capacity in almost every facet of its business. Those would include a stable of 11 brands, roughly 10,000 dealers and some 97,000 union-represented factory workers, analysts have said.

But one of the conditions of the merger would be that GM-Chrysler would spare as many jobs as possible in order to win broad political support for the government funding needed to complete the deal, people familiar with the merger discussions said.

GM could not be immediately reached for comment. Cerberus and Chrysler had no comment.

The roughly $10 billion to support the GM merger with Chrysler would be in addition to whatever funds would be allocated to the automaker under an already approved $25 billion program to provide low-interest loans to the industry for retooling to make more fuel-efficient cars.