GM shelves Chrysler talks in a play for government cash

Posted by: David Welch on November 7, 2008

When General Motors announced its $4.3 billion third-quarter loss—and the conflagration of almost $7 billion in cash that went with it—the company also said that talks to acquire Chrysler are being put on the shelf. GM needs to focus completely on its cash and liquidity problems, Chairman and CEO Rick Wagoner said. Is that the real reason?

Well, in a manner of speaking, yes. While GM was talking to Chrysler owner Cerberus Capital Management about acquiring its crosstown rival, Wagoner has been jawboning Treasury Secretary Hank Paulsen and members of Congress about getting some kind of bailout from the federal government. But one big question looms. How could the government sell taxpayers on a bailout plan that would fund a GM-Chrysler deal and might cut tens of thousands of jobs? Aren’t these government plans supposed to save jobs?

GM wanted to make an assistance plan as easy for Congress and president-elect Barack Obama to approve. So they decided to shelve talks. One GM source, who asked not to be named, says that was the primary reason. Using taxpayer dollars, even a loan, to fund a merger is a political minefield. First, it would amount to public funds for job cuts. Then of course, there is at least the possibility that the investment bankers who would work the deal—those guys on Wall Street who have become effigies—would make money brokering the deal. Then there is at least the perception that Cerberus would make money on the sale with taxpayers underwriting it. Sell that one to an angry public.

If the GM-Chrysler deal is off the table, a bailout is an easier sell. So maybe Wagoner isn’t doing that solely so that he and his team can spend more time trying to find money for GM. But he may help grease the wheels for some government help.

Then, later on, if and when GM is stable, the company could go back to the Obama administration and the new President that they can help him preserve some of the jobs at Chrysler. At least, that’s one idea kicking around at GM. But first, GM has to save itself.