GM Seeks Government Loan To Buy Chrysler

General Motors is asking the government for a loan that would make it possible to acquire rival carmaker Chrysler. There is a growing list of industries that would like to be included in the Treasury Department's financial bailout and it's not clear yet how Treasury will respond.

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ROBERT SIEGEL, host:

From NPR News, this is All Things Considered. I'm Robert Siegel.

MICHELE NORRIS, host:

And I'm Michele Norris. First this hour, General Motors is seeking billions of dollars from the federal government to stay afloat. GM needs money to pay for a possible merger with Chrysler.

SIEGEL: In a moment we'll hear from someone who says it's time to let American car companies fail. First to what GM says. NPR's Frank Langfitt gets us started.

FRANK LANGFITT: GM officials have been making the rounds in Washington. The company is tearing through cash and looking for a lifeline. Greg Martin is the company's spokesman.

Mr. GREG MARTIN (Spokesman, GM): We have for quite some time now been talking to a variety of officials, just as other companies and industries have been doing during these very difficult times. We believe government should employ all the tools that are available to it to support an industry that's in distress and is important to the economy.

LANGFITT: One tool GM is looking at is the Treasury Department's $700 billion bailout fund. The money was originally designed to buy toxic mortgage-backed securities. Now it's being used to pump money into banks. Treasury spokeswoman Brooklyn McLaughlin described the kind of firms that qualify.

Ms. BROOKLYN MCLAUGHLIN (Treasury Department Spokeswoman): The Capital Purchase Program is available to federally regulated banks and savings institutions.

LANGFITT: OK, that does not sound like General Motors. But GM does have a loan financing arm, GMAC. And Treasury Secretary Henry Paulson has proved creative as the credit crisis has spread to a variety of industries. Another place GM is looking for money is the Department of Energy. The agency has $25 billion set aside for the auto industry. But that money is designed to promote fuel-efficient vehicles, not mergers. Haley Baumgardner, a spokeswoman for the agency, would not confirm any conversations with GM, but she added this from a statement.

Ms. HALEY BAUMGARDNER (Energy Department Spokeswoman): The Department of Energy has always had an open line of communication with the automakers, an industry we highly support as part of our Advanced Vehicle Technology program, among others.

LANGFITT: Baumgardner said the agency is still writing the rules for the loan program. She also said it hasn't received formal applications yet. Whether General Motors can get any of this money, there's no question it needs it.

Mr. AARON BRAGMAN (Auto Analyst, Global Insight): GM is currently burning through cash at about a billion dollars a month.

LANGFITT: That's Aaron Bragman. He's an auto analyst with Global Insight, the financial analysis firm. The credit crisis and an apparent recession have destroyed consumer demand for cars. Bragman says GM needs cash just to survive.

Mr. BRAGMAN: Sales are down such to the point where they're just basically not making any money, and they're really losing their shirt in the market. So they have to try and find new sources, more people that'll lend them money.

LANGFITT: That's one reason GM is eying Chrysler. The smallest of the Detroit three has lots of problems, but as of a few months ago it also had $11 billion on hand. The other reason GM wants Chrysler is some valuable brands, including Jeep and the Dodge minivan. But Aaron Bragman acknowledges that combining the firms won't be easy.

Mr. BRAGMAN: It's basically taking two sick companies and putting them together and trying to make one healthy company out of it. And that's not going to happen without a lot of cutting and a lot of slashing and a lot of burning.

LANGFITT: GM would have to get rid of many competing Chrysler brands. It would also have to lay off many thousands of workers. Bragman says the company would probably use some federal money to pay severance to United Auto Worker members to avoid a strike.

Do you have any reason to believe that a merger would work?

Mr. BRAGMAN: That's a very good question. There are far more obstacles, frankly, in terms of making this merger work than there are chances of success.

LANGFITT: Indeed, recent history is not encouraging. An earlier union between Chrysler and the German firm Daimler was a disaster. Maryann Keller, a longtime auto analyst, says mergers often don't work out as planned.

Ms. MARYANN KELLER (Auto Analyst): All kinds of things that are, you know, in the realm of the unexpected, torpedo your very best assumption.

LANGFITT: But in the current crisis, General Motors faces dwindling options. As Aaron Bragman put it, the big question may not be what happens if GM merges with Chrysler, but what will happen if it doesn't. Frank Langfitt, NPR News, Washington.

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