GM could have case for aid: experts

The grill emblem on the 2007 Chevrolet Impala during the Chicago Auto Show, February 7, 2007.

WASHINGTON (Reuters) - General Motors Corp (GM.N) is lobbying for a $10 billion government bailout to help it merge with Chrysler LLC, and could make a strong case for crucial parts of the package, experts said on Tuesday.

Chief Executive Rick Wagoner has personally discussed assistance in recent days with Bush administration officials who have not disguised their reluctance over the years to help the once vaunted but now deteriorating U.S. auto industry.

Financial pressures on Detroit automakers are acute, and the GM proposal -- not coincidently -- ramps up in a politically charged climate with the presidential election on closing fast. Most of Congress will face voters on November 4 as well.

Selling the plan around an election is a high-wire act, with the possibility that a merger could result in plant closings, layoffs and other drastic cost cutting in politically strategic states already hard hit by automakers' problems and U.S. economic woes.

GM may have easier success in making a less emotional case and leave the Treasury Department through the front door with a rescue plan in place. The argument would simply cite the company's overall impact on the economy through manufacturing and related industries, and emphasize the structure and reach of its distressed but historically lucrative consumer lending operations.

For instance, major automakers own or partially own companies -- GMAC, Ford Motor Credit, and Chrysler Financial -- that run auto financing, insurance and mortgage operations.

Troubled lending assets at these units are a drag on overall car company performance. GMAC LLC has restricted its lending only to buyers with the best credit at a time when sales are plummeting and GM is burning through cash.

Gerard Comizio, attorney at Paul Hastings' banking and financial institutions group, said financial services operations at car companies fit well with the government's ongoing efforts to unfreeze credit markets that has mainly focused on capital injections for U.S. banks.

"The automakers are an easy sell because they own banks," Comizio said of their lending arms.

Scott Talbott, chief of government affairs for the Financial Services Roundtable, said industry aid could clearly help consumers get car loans at a time when lending markets are virtually frozen.

Also, the aid would spread to not only the automakers and their finance businesses but also to dealers, which rely on the automakers' ability to have access to credit.

"Both of those processes have shut down," Talbott said.

Late on Tuesday, GMAC said it had been approved to use the short-term funding facility created by the U.S. Federal Reserve earlier this month to ease pressure on the corporate credit market.

Automakers and their affiliated finance companies also would like the Treasury to buy back distressed auto loans in addition to bad mortgage debt.

The White House, through its chief spokeswoman, alluded on Tuesday to the link between auto financing and government help as a way to possibly leverage assistance through the ongoing corporate rescue effort.

Dana Perino said Treasury "is going to have to take a good hard look" at what financing may or may not be available.

"There's a whole range of tools," Perino said that could be used to help Detroit.

Sources familiar with GM's merger talks with Chrysler, owned by Cerberus Capital Management, have said GM is asking for roughly $3 billion in capital injections in exchange for preferred stock in a merged entity. It also wants government to take other steps to ease liquidity problems.

The sources have also said GM wants $3 billion in pension relief. Although details of this request are not clear, government insurers usually assume pension plans only when companies liquidate or are restructuring in bankruptcy -- not as part of a merger between two solvent firms.

GM, Chrysler and Ford Motor Co (F.N) have all dismissed bankruptcy as an option.

A $3 billion federal pension claim would rank among the largest in corporate history, trailing only airline and steel defaults.

GM would not comment on its lobbying efforts.

(Reporting by Karey Wutkowski and John Crawley; additional reporting by Toby Zakaria; editing by Richard Chang)