Money is Money To GM and Chrysler

Posted by: David Kiley on November 3, 2008


Most of the news coverage and rhetoric about the government’s help of General Motors misses the point.

Take the “news” over the weekend as reported by Reuters and The New York Times. “The Treasury Department has turned down a request by General Motors for up to $10 billion to help finance the automaker’s possible merger with Chrysler, according to people close to the discussions.”

The idea that the White House would green-light $10 billion to help GM complete an acquisition of Chrysler was never in play.
Weeks ago, sources close to Rep. John Dingell (D-MI) and Senator Carl Levin (D-MI) said that a direct assistance for a merger of the two companies was a dog that was not going too hunt in the White House or in most of Congress.

When I caught up with Levin last week at a campaign stop, he made it clear that he was not seeking or pushing for assistance for GM to create a merger. If he isn’t pushing for it, then such a plan was not much in play. What Levin and Dingell have been pushing for is the speeded up release of funds from the Department of Energy, which is writing rules and conditions by which the automakers can apply for $25 billion in loans to off-set tech investments they have been making since January of 2008 and through next year to bring more fuel efficient vehicles to the marketplace. The lawmakers are also pushing for GMAC, Ford Credit and Chrysler Credit to be able to borrow from the Fedetral Reserve’s discount window like a bank in order to make more credit available to borrowers.

As Levin said: “These measures are not meant to assist GM in an acquisition of Chrysler, but if it has the effect of doing that, that’s another matter.”

Levin said one idea on the table, and presumably being boosted by him is allowing the automakers and suppliers to apply for loan money to cover retro-active investments—perhaps allowing GM and Ford to recoup money long since spent on hybrids and electrics. That would have the effect of a cash infusion to the companies that could help GM cover the costs associated with taking over Chrysler.

Under an expedited program with DOE, GM and Chrysler could apply for the loans separately, but pre-agree to pool the money to help a merger deal go through.

“The point is to get the automakers cash in the most politically acceptable way,” one Capitol Hill source told me. “And a direct payout to help a merger happen was a non-starter.”

Reader Comments

Wes

November 3, 2008 1:30 PM

Merging two weak companies does not create one strong one. As painful as it would be for the employees, Cerberus needs to either fix Chrysler or fold it. Automotive history is full of nameplates that had good cars but didn't change with the times including Packard-Nash, Kaiser, and Studebaker.

I would hate to see GM squander the great gains they have made in their products by focusing on repairing a broken company. Chrysler can sell off the Dodge Ram to Nissan, Viper to a private owner, the minivans to GM, and distribute the proceeds among the employees and have a graceful shutdown of a once proud name.

Either this, or GM/Chrysler will be killed by Toyota in the next 10 years at much higher costs to society.

We Need Competition

November 3, 2008 1:48 PM

The government giving money to help finance a GM-Chrylser merger is absolutely the WRONG way to go. If anything, I think the FTC should make a determination that such a merger would be in restraint of competition. The merger would leave only two domestic players in the industry. I'd be much more in favor of something along the lines of what the government did for Chrysler in the '70s - low or no interest loans develop and launch competitive products...now if only Chrysler had the same caliber of management today that it had in the 70's that launched the K-car revolution. Lee Iacocca where are you when we need you?!?!?

matthew rock

November 3, 2008 3:16 PM

Chrysler would not be in this position now had Daimler not strip-mined the company and sold the shell.

Bill

November 3, 2008 4:04 PM

Isn't this just another bailout. We won't lend you the $ but you can get it from DOE who is the government? Typical politician double talk. What about GMand Chrysler's millionaire dealers, let them re-invest some of their $ so their dealerships can stay afloat. Why does it have to be the taxpayers?

Sandy

November 3, 2008 4:55 PM

What should be done is provide incentives to any entity willing to buy Chrysler to SAVE it and its employees. That would also include Cerebus if they decided to keep it. To give GM money to destroy Chrysler and the jobs of 40,000 Chrysler employees, 10,000+ supplier jobs and 25,000 dealership jobs is insane.
This could lead to a domino effect in our economy. Think of the loss of income tax revenue those jobs would cost Michigan and the Federal Gov't. Now consider the claim made on Gov't for unemployment and other Gov't benefits. Now factor in the Gov't taking over the Pension plans of all the Chrysler employees.
Ouch! I wish GM the best of success in its survival but not at the expense of Chrysler and its people.

Jim Campbell

November 3, 2008 7:34 PM

The economy is bad and may get worse. The stock markets are down, the home mortgage and other credit systems are broken, the jobs situation could possibly continue to deteriorate. Who knows what else looms?

David

November 3, 2008 8:34 PM

I'm not sure the right way to get to this for GM, but a total corporate reorganization is required, including dealing with the pensions and unions. There is no point investing in the company as it is currently (a failed company)

Maybe they need chapter 11 to reorganize, then get the investment to build THE NEW Economy cars, hybrids, electrics, nat gas, feul efficient gas.

Jack Norris

November 5, 2008 5:37 AM

How does GM solve its problems by taking on another problem? How do you compete when the other guys pay $40 per hour and you're paying $70?

That GM, Ford and Chrysler are bankrupt is a fact no matter what the spin; they just haven't filed the papers.

A "loan" with a political agenda attached is of little help.

The bottom line on their collective or individual survival is whether they are going to build a car that their audience wants to buy.

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