GM Has Not Sought Fed Bailout; Options Open

General Motors said Saturday it has not sought a federal bailout but did not rule out the possibility of approaching the U.S. government or taking other dramatic steps to survive a worsening downturn in auto sales.

AP

Speculation was triggered by a report in Barron's, which said GM was expected to seek a loan from the Federal Reserve to bolster its cash position. The financial weekly cited two unnamed people it said had knowledge of the situation.

A GM spokesman said the No. 1 U.S. automaker was not actively pursuing access to low-cost Fed loans but it also wanted to keep all options open as it tries to shore up its cash by $15 billion through 2009.

"In this period of continued uncertainty in the markets, you really can't rule out anything," Greg Martin said.

The central bank, the White House and transportation officials had no comment on the matter, which came as President George W. Bush and other world leaders raced to try to calm financial markets and stem worsening global economic instability.

Bush huddled with finance leaders from top industrialized nations and said Washington was working as fast as possible to thaw credit markets through a $700 billion plan to buy distressed debt.

The GMAC finance unit stands to benefit from that initiative.

GM and the other struggling Detroit automakers and their affiliated businesses have been particularly hard hit by the inability to get access to corporate borrowing.

To add to their woes, GM, Ford Motor and Chrysler, are in the midst of painful restructurings, complicated by a steep slide in sales this year.

Consumers are concerned about high gasoline prices and a weakening economy and many who want to buy a car have not been able to obtain financing.

There has been an expectation in Washington that automakers would look to tap into $25 billion in low interest loans approved by Congress last month for them to retool factories and undertake other initiatives to make more fuel efficient vehicles, as required by a 2007 federal mandate.

At the time, industry took exceptional pains to refute characterizations of the loan program as a bailout.

The Bush administration, long wary of offering domestic automakers much help until they fixed their own financial problems first, signed onto the loan assistance so long as it would not be construed as a bailout.

That money may not be available for several months, a problem that senior members of the Michigan congressional delegation have been aggressively trying to change as GM and its domestic rivals accelerate their cash burn in the rapidly slumping economy.

Another twist in the loan program is that the help is only intended for companies that are commercially viable, a seriously worrisome factor for all U.S. manufacturers if the money is going to take a long time to come through.

Leading credit rating agencies say GM has adequate liquidity for 2008, but 2009 is a question if business fundamentals deteriorate further.

GM on Friday ruled out bankruptcy but speculation intensified on Saturday that it might go in another direction and pursue a merger with Chrysler.

Erich Merkle, an industry analyst and consultant at Crowe Horwath, said access to low-cost funds from the U.S. central bank could stave off the risk of a bankruptcy.

"I know GM has said no to bankruptcy, but the concern is that at some point they simply run out of cash and simply have no other option," he said.

In 1980, the U.S. government provided $1.2 billion in loan guarantees to Chrysler, a bailout that enabled the company to turn around its fortunes.

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