GM, Chrysler Merger on Hold as Aid Hopes Fade

A deal to merge General Motors and Chrysler has hit an impasse after the Bush administration ruled out funding for it, putting any merger on hold until after the U.S. presidential election, three people with direct knowledge of the talks said on Thursday.

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This puts any merger of the struggling automakers on hold until after the U.S. presidential election, the sources said.

The development adds a new element of uncertainty for the embattled U.S. auto industry as Detroit's political allies warn the sector faces a deepening financial crisis that threatens tens of thousands of jobs.

It also opens the door for Cerberus Capital Management, which owns Chrysler, to restart talks with the Nissan-Renault alliance, one of the sources said. The private equity firm had seen the alliance as a backstop to its talks about an outright acquisition of Chrysler by GM , one of the sources said.

This week, Carlos Ghosn however said he sees any deals among automakers involving a cash element as unlikely unless cash comes from outside, such as from the government.

The sources declined to be named as they were not authorized to discuss the private talks. GM and Cerberus declined comment. Chrysler said it was pushing ahead with its own restructuring plans.

A merged GM-Chrysler would be the largest automaker by global sales, but analysts have cautioned it would struggle to turn around the overlapping Detroit-based operations of two firms that have seen mounting losses tied to a global downturn in sales.

Chrysler, which has seen its sales fall 25 percent this year, said it was moving ahead with a cost-cutting plan as it pushes ahead with plans for new vehicles, including a plug-in hybrid.

"We are taking the tough but necessary decisions to stabilize the business in the short-term and making the viable long-term business decisions to restructure the company for the future," Chrysler spokeswoman Lori McTavish said.

GM and Cerberus have been in talks since September.

GM had approached the U.S. Treasury in recent days about support for the merger through some $10 billion in new funding that would have included taking an ownership stake in the merged company, people familiar with the talks have said.
     
Treasury Stays Away

But a Bush administration official said on Thursday the Treasury Department was not negotiating on direct aid for the merger.

Instead, the official told Reuters, the administration was working to speed the distribution of $25 billion in low-cost loans for automakers to retool factories that was authorized by Congress last month.

With an offer of immediate government aid off the table, talks about combining GM and Chrysler are on hold until after the Nov. 4 election when the parties hope to sit down with representatives of the new administration, the sources said.

A decision by the Bush administration to provide the government's first funding for the auto sector since the $1.5 billion bailout of Chrysler in 1980 had been widely seen as the merger's best chance for success.

Private investors consulted in the course of the talks have not expressed interest in providing funding for the controversial deal in the absence of government backing, people with knowledge of the talks have said.

In the absence of a deal, Cerberus pushed ahead with a restructuring for GMAC, the money-losing auto finance and mortgage provider in which it owns a 51-percent stake.

The Detroit-based lender said it was in talks with federal regulators about becoming a bank holding company, which would make it easier for it to participate in a $250-billion bank recapitalization plan.

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