Reuters: Feds not offering money for merger

Reuters reports that a Bush administration official has said the U.S. Treasury Department is not negotiating with General Motors Corp and Cerberus Capital Management, the owners of Chrysler Holdings LLC, to provide direct government aid to their proposed merger.

The official said, “Treasury is not negotiating with the automakers, the administration is working to get the $25 billion Congress already authorized to the industry.”

The $25 billion in government-backed, low-cost loans are designated for retooling factories to produce the more efficient vehicles mandated by the federal government. All three Detroit automakers lobbied for more flexibility in the use of the funds but were overruled by Congress.

GM has been lobbying for a $10 billion bailout to fund a merger with Chrysler. The governors of Michigan and five other states urged the federal government to provide aid for the U.S. auto industry because the potential strain caused by increased unemployment claims and diminished tax revenue could create an unmanageable disaster at the state level. An industry consultant said this afternoon the proposed merger could put 200,000 people out of work but that would be a preferable alternative to having one of the automakers declare bankruptcy.

General Motors and Cerberus had hoped to have a deal ready by Election Day but the outside financing they were lining up was dependent on a capital injection from the federal government. It’s possible the merger may have to wait until the new administration and Congress take office next January.