General Motors Corp. is reportedly making progress in its efforts to win government funding for a possible merger with Chrysler LLC. GM and Chrysler private equity owner Cerberus Capital Management LP have been in
talks for weeks about a potential deal, but General Motors according to
sources is reluctant to do any deal that would not provide it with at
least some of the estimated $15 billion in new liquidity it needs to
survive a sales slowdown. With Cerberus and other private investors
apparently unwilling to provide that level of capital, the companies
have
turned to their allies in Washington for help.
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According to a Reuters report Monday, the Treasury Department is considering providing at least $5 billion in aid via options that could include direct capital injections or government purchases of auto loans. A decision on the government assistance, which could require GM to surrender equity, could come as early as this week.
Any government assistance could be a difficult sell, as the Treasury in effect could be financing a merger that could lead to the elimination of a majority of Chrysler's 60,000 jobs. If the government does indeed get involved, it could mandate that Cerberus also provide equity to GM, so the deal is not perceived as a bailout of the private equity giant's struggling auto investment, and that General Motors pledge to keep a certain number of Chrysler blue-collar jobs.
GM appears to have few good options. The automaker was downgraded by Moody's Investors Service to Caa2 from Caa1 on "the expectation that the pace and severity of erosion in the U.S. automotive sector will severely outpace the company's ability to respond effectively." - Lou Whiteman
See Dealscape post on Michigan lawmakers lobbying on the automakers behalf
See Reuters report
See Dealwatch: Autos
Lou Whiteman is The Deal's senior automotive reporter.
