GM has asked for federal help to fund Chrysler merger

General Motors has asked the U.S. government for financial aid to help it complete a merger with Chrysler. According to sources, GM executives have asked the Treasury Department to consider taking a stake in the merged company.

One of the people with knowledge of the discussions said the government is reluctant. Treasury Secretary Henry Paulson wants any government funding for the auto industry to come from the $25 billion in low-interest loans approved last month to build more-efficient vehicles. He does not want to tap the $700 billion approved to rescue financial institutions. This is a view shared by Senator John McCain, the Republican Presidential candidate. The Democratic candidate, Senator Barack Obama, favors more federal aid for the auto industry.

The loan program Congress approved is intended to help automakers convert plants to build more-efficient vehicles. DOT officials have said the money may not be available for six to 18 months and there are restrictions on how it can be used.

The bailout GM wants would provide immediate cash until the savings it sees from the merger can be realized, a process analysts have said may take months or years to realize. According to a report published in the Wall Street Journal, the two automakers estimate the merger would need $10 billion in fresh cash to pay for job cuts, plant closings, integrating operations and provide much-needed liquidity. The sum being sought is about equal to the estimated potential savings of the merged companies.

Chrysler reportedly has $11.7 billion in cash but General Motors would have to assume about $16 billion in new debt to get it. The money GM is seeking from the federal government would be in addtion to the Chrysler reserves.

Quoted on Bloomberg News, Louis Lataif, the dean of Boston University’s School of Management and a former Ford executive, opined, “Absent government intervention, it’s difficult to see how this merger makes sense.”

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