Automakers seek government aid beyond bailout and loans
Posted: Wednesday, October 29, 2008 8:33 pm
By KEN THOMAS
and TOM KRISHER
Associated Press Writers
WASHINGTON (AP) — Beleaguered U.S. automakers are seeking federal help beyond the money available for them as part of a financial industry bailout and a loan package to fund more fuel-efficient cars, the White House said Tuesday.
White House spokeswoman Dana Perino said the auto industry has talked to the Bush administration about funding on a much broader scale than the two programs approved by Congress earlier this fall.
“No doubt that the automakers are big important companies, important to a lot of families and important to a lot of regions in this country,” Perino said. “We are capable of competing at a level where these companies can succeed, they might just need a little help. And that’s what Congress asked us to help provide them.”
General Motors Corp., which is in talks about acquiring Chrysler LLC, is pursuing $5 billion to $10 billion in government aid, said an industry official, who declined to be identified because the discussions were private. GM officials declined comment.
GM has approached members of Congress and the administration about a number of ways that government funding could be used to help the company, including playing a part in a Chrysler deal, said a person briefed on the negotiations. The person asked not to be identified because no deal has been completed.
The requests have come as General Motors and Chrysler LLC are burning up cash because of an auto industry sales meltdown due to the U.S. economic downturn.
Perino said the “decisions about their futures — and potential mergers — will be decided by them.”
Yet industry analysts say government funding might be necessary to seal a deal because of the difficult economic conditions and frozen credit markets.
The Bush administration and Congress would have an interest in the automakers’ survival because of the magnitude of the pension obligations it would face in a bankruptcy and the potential for massive job losses.
Chrysler employs about 49,000 in the U.S. and has about 125,000 pensioners. GM has 177,000 U.S. workers and around 500,000 people receiving pensions.
The Center for Automotive Research in Ann Arbor, Mich., estimates that for each auto manufacturing position, there are 7.5 jobs with parts makers and other companies, meaning the industry accounts for millions of jobs.
Any role by the government in a GM-Chrysler deal would face scrutiny from Congress because it would likely lead to significant job losses as the companies combine operations.
The White House is focused on two major options to aid the industry, Perino said. They include the $25 billion in government loans approved by Congress for fuel-saving technology and money to free up credit through the $700 billion Wall Street bailout.
Perino said the White House is trying to help automakers access part of the $25 billion. GM has been seeking about $5 billion from the program.
Both Barack Obama and John McCain, along with Michigan lawmakers, have urged the Bush administration to expedite the money after estimates that it could take six to 18 months to fund the loans.
While the government wrangling continues, all three U.S.-based automakers are having cash troubles, with Chrysler and GM considered by industry analysts to be in the worst shape.
GM, which is burning through more than $1 billion per month, is interested in acquiring Chrysler to access its $11 billion cash stockpile. Chrysler, however, has an unspecified amount of debt, and many of its dealers, factories, brands and models duplicate GM’s and likely would be shed if GM acquires Chrysler.
GM likely wants government dollars to make the numbers work to acquire Chrysler, perhaps using some of the money to shut down redundant Chrysler operations.
Industry analysts say Chrysler is in such bad shape that it could go into bankruptcy next year if it doesn’t take on a partner or isn’t acquired by another automaker. GM also could reach the minimum amount of cash needed to pay its bills sometime next year, analysts have said.
David Cole, chairman of the Center for Automotive Research, said the aid would attempt to save some Chrysler jobs rather than lose all of them. Ford or Chrysler also could be in trouble if the global economic turmoil continues into next year, he said. Cole estimated that 2 million jobs, including parts suppliers and other vendors, could be lost if GM or Ford went under.
If government funding, particularly money from the fuel-efficiency loans, is released, then GM could use it for fuel efficiency projects already in the works, freeing up money for other areas, said Jack Nerad, executive market analyst for Kelley Blue Book.
“There are a lot of currently funded programs that could qualify for that money which would then free up money to do other things, keep the lights on among them,” Nerad said.
The financing arms of the automakers may also be eligible for federal help under the $700 billion financial rescue package.
When Congress approved the bailout legislation, Michigan lawmakers entered language into the congressional record that made clear the bailout would apply to auto financing companies.
Gina Proia, spokeswoman for GMAC Financial Services, GM’s financial arm, said the lender is still trying to figure out the process for getting part of the money, but has not yet applied for any.
GM sold 51 percent of GMAC in 2006 to Cerberus Capital Management LP, the majority owner of Chrysler, but still owns the rest.
Government funding likely will affect whether GM and Chrysler can agree on a merger. Talks continue, but a deal won’t come for at least another two weeks, said a person briefed on the talks who asked not to be identified because they are private.
AP Auto Writer Tom Krisher reported from Detroit. AP White House Correspondent Jennifer Loven contributed to this report.