GM, Chrysler May Get U.S. Loans to Survive to March

By John Hughes and Robert Schmidt

Dec. 19 (Bloomberg) -- General Motors Corp. and Chrysler LLC would get U.S. loans to stay afloat until March under a Bush administration rescue plan that may be unveiled as soon as today, people familiar with the talks said.

The government could take back the money should the automakers not comply with federal restrictions as a condition of receiving the funds, said the people, who asked not to be identified because the discussions are private. The plan isn’t final and may change, the people said.

The aid is intended to help GM, the largest U.S. automaker, and No. 3 Chrysler avoid collapse because they may run out of operating funds by early next year. GM and Chrysler have said they need $14 billion to stay in business through March and are temporarily idling plants to trim expenses.

“I’m worried about a disorderly bankruptcy and what it would do to the psychology of the markets,” President George W. Bush said yesterday during a forum at the American Enterprise Institute in Washington. Bush said he doesn’t want to “dump a major catastrophe” on his successor, Barack Obama. Still, he added, he is “worried about putting good money after bad.”

Paulson’s View

Treasury Secretary Henry Paulson said “anything that’s done has to be a step along the way to long-term viability” for U.S. automakers.

“That’s difficult to do outside of reorganization, but something that can be done,” he said in response to a question late yesterday in New York. While it would be best to avoid a bankruptcy, “if the right outcome is reorganization or bankruptcy, it’s important to get there through an orderly process.”

The Treasury Department may lend to the automakers through their credit arms, GMAC LLC and Chrysler Financial, to avoid having other industrial companies line up for access to the $700 billion Troubled Asset Relief Program, the people said.

“The idea of TARP is to help with troubled assets, so Treasury can do it this way, and it already has permission to do it,” said Ed Fredericks, a professor at Pepperdine University’s Graziadio School of Business in Malibu, California.

Greg Martin, a spokesman for Detroit-based GM, and Chrysler spokeswoman Shawn Morgan declined to comment. White House spokesman Tony Fratto also declined to comment, saying “decisions haven’t been made.” Ford Motor Co., the second- biggest U.S. automaker, isn’t seeking emergency aid.

GM, Ford Shares

GM fell 71 cents, or 16 percent, to $3.66 yesterday in New York Stock Exchange composite trading, and Ford slid 30 cents, or 9.6 percent, to $2.84. The companies’ shares tumbled 85 percent and 58 percent, respectively, this year before today.

The three U.S. automakers are suspending work at about 59 plants into January as unsold cars pile up in showrooms. GM is reeling from almost $73 billion in losses since 2004 and a 22 percent drop in U.S. sales this year, while Auburn Hills, Michigan-based Chrysler’s decline is 28 percent.

GM reported having $16.2 billion in cash as of Sept. 30 and needs at least $11 billion to pay monthly bills. Cerberus Capital Management LP’s Chrysler ended last quarter with $6.1 billion and needs at least $3 billion to operate, Chief Executive Officer Robert Nardelli told Congress on Nov. 18.

The negotiations over a rescue plan have involved the three U.S. automakers and each of their finance arms, and have been difficult in part because Treasury’s expertise is in banks, not manufacturers, the person said.

Bankruptcy Plan Studied

While the option of placing Chrysler and GM into a prearranged bankruptcy has been considered, the administration decided that such a move would put Ford at a competitive disadvantage, the person said.

Paulson has been debating whether to ask Congress for the second half of the bank-bailout funds before the Obama administration takes office in January. A $14 billion cash infusion for automakers would mean that the Treasury has used almost the entire $350 billion it was given in October.

Securing the extra money would give the Treasury a cushion in case another bank or insurer neared collapse. Democratic lawmakers may resist, because they’ve said they won’t back more funds without a new effort to aid homeowners facing foreclosure. The leaders support helping automakers, saying a collapse would extend the longest recession since the early 1980s.

Gross domestic product fell at a 4.2 percent annual pace in the fourth quarter of 1970 -- when, like today, the U.S. was in a recession -- after a 67-day nationwide strike against GM.

Auto production now accounts for about 3 percent of GDP, Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, estimated last week. About 239,000 people work in the U.S. for GM, Chrysler and Ford, according to the Center for Automotive Research in Ann Arbor, Michigan.

Job losses from a failure of GM would reach 2.5 million, and total 3.5 million should all three automakers go out of business next year, according to the center, which conducts studies for government agencies and companies. That includes 1.4 million people in industries such as retailing that aren’t directly tied to manufacturing.

To contact the reporters on this story: John Hughes in Washington at Jhughes5@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net;