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Wednesday, October 29, 2008

GM Chrysler Deal still on the Table

DETROIT — Emergency financial help from the U.S. government may be on the way to Detroit to support a merger between General Motors and Chrysler.

The New York Times reported on Tuesday that the Bush administration is looking into "a range of options for providing emergency financial help to spur a merger between General Motors and Chrysler." Reuters said the two automakers have asked the feds for "roughly $10 billion in an unprecedented rescue package" for such a merger. And the Associated Press said the financing arms of the automakers might be eligible for federal help under the bank stock-purchasing portion of the government's $700 billion financial rescue package.

If GM and Chrysler were to merge, such an entity would control about a third of the U.S. auto market by sales and include 11 automotive brands from Cadillac to Jeep.

The Detroit automakers are under growing pressure to come up with a plan to stave off bankruptcy filings. Late Monday, Moody's Investors Service sent its ratings on GM and Chrysler deeper into so-called "junk" status. Ford was put on review for a possible downgrade. All of the aforementioned moves add to the jitters about the domestic auto industry's financial health.

Among the options that the U.S. government is considering: tapping into a $25 billion loan program that Congress set up to help the auto companies modernize their plans and returning to Congress after the November 4 election for authority to spend funds aimed specifically at the auto industry, said the Times report.

However, the $25-billion loan program was originally designed to provide low-interest loans to the domestic auto industry for retooling to make fuel-efficient cars such as the Chevrolet Volt. The original intent was not to orchestrate a merger between Chrysler and GM. It is unclear what a diversion of funds from the loan program may mean for the development of more fuel-efficient vehicles.

Inside Line says: Nothing is cast in stone yet on federal aid for a Chrysler-GM merger — but it's clear some kind of help is imperative. — Anita Lienert, Correspondent


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