However, latest reports indicate that GM has already asked the government for a $10 billion aid package to help it acquire Chrysler. Instead of a standard loan the federal government would receive preferred stock in the merged company, giving it a stake in the largest automotive manufacturing operation in the world should the merger take place.
Sources within the Treasury have revealed information about the possible aid package, which would include both cash and government purchases of auto loans, reports Reuters. Although $5 billion is considered to be the minimum aid figure on the table, a figure closer to $10 billion may be necessary to get the combined GM-Chrysler operation steady on its feet.
Executives at GM are confident they can acquire what it wants of Chrysler and improve its own position, but outsiders think such a result neglects the financial realities of the purchase. Chrysler is carrying about $9 billion in debt that would need to be either paid off or refinanced upon acquisition, further complicating matters for the merger. GM had nearly $21 billion in cash at the middle of the year, but was using about $1 billion per month at the time, and likely even more now as the market continues to slide. It must still generate another $4-5 billion in cash to pay off 30,000 to 40,000 union jobs that could be cut in a merger between the two companies if the deal does move forward.
Government funding for the merger, if made available, could potentially salvage the deal and stave off some of the massive layoffs that would otherwise be necessary. Excess capacity for a combined and presumably streamlined operation would still necessitate some layoffs, but if the merged company wasn't forced to deal with raising billions in cash through cost-cutting, it might be able to hold on to more of the workers currently employed by both companies.
GM does have the possibility of trading its remaining stake - 49% - in GMAC to Cerberus, owner of Chrysler, for all or part of its 81% share in the company, but that, too is fraught with debt and other difficulties. Nevertheless, the parties are charging forward, with a possible announcement within the next two weeks.