Treasury ends talks with GM and Chrysler, puts merger on hold

The United States Treasury Department has put an end to any hope that additional federal money will be lent to either General Motors or Chrysler to help aid a merger. The Bush administration's decision not to fund the merger at this time effectively puts the question on hold until after the upcoming U.S. presidential elections.

"The Treasury is not negotiating with automakers," a Bush administration official revealed to the Detroit Free Press. No reason was given but GM and other automakers are reportedly still attempting to lobby the government for more financial assistance.

One of the likely reasons is that any merger will undoubtedly result in thousands of job losses, with or without federal aid. Chrysler owner Cerberus Capital Management and GM have been in talks for weeks to merge the two automakers, but the deal is being held up by financing. Such a merger likely could lead to more than 200,000 job losses across the auto industry, as well as the elimination of several brands and dozens of models.

"The biggest problem they have right now is the government's participation. The government does not want to participate on a merger basis," a person briefed on the talks said.

While the Treasury has ruled out any further help than the initial $25 billion loan package announced late last month, the auto industry is now turning to the U.S. Commerce Department, which is responsible for the approval of the aforementioned loans.

"The administration is working to get the $25 billion Congress approved to the industry quickly," an administration official said.

The rules for the loans aimed at retooling plants could be ready as soon as next week, with money flowing to the automakers by early next year. According to an inside source, the auto industry and UAW are now planning to ask Congress to put an additional $25 billion into the program and broaden the rules covering the loans so that they can be used for a variety of costs rather than only to aid the development of more fuel efficient models.

While merger talks between Chrysler and GM may be at least temporarily on hold, this situations opens the door for Nissan-Renault to attempt to court Chrysler. While nothing has been confirmed on that front either, it's been rumored that Nissan-Renault is looking for a 20% stake in Chrysler. Logically, Cerberus doesn't want to split Chrysler into smaller pieces if it can avoid it, but the government induced delay may leave the cash-strapped carmaker no choice. Nissan and Chrysler already have a deal in place for product sharing, and any further involvement would likely use that as a jumping-off point, reports Automotive News.