Auto aid pleas mount; Treasury says no GM talks

DETROIT/WASHINGTON Fri Oct 31, 2008 6:20pm EDT

1 of 2. A row of Chrysler Jeep Commander SUVs are seen at a dealership in Silver Spring, Maryland, July 1, 2008.

Credit: Reuters/Yuri Gripas

DETROIT/WASHINGTON (Reuters) - Six U.S. governors and a group of chief executives on Thursday urged the Bush administration in a letter to aid the embattled auto industry while the White House rebuffed a request for direct support of a merger between GM and Chrysler.

An administration official said the focus instead would be on speeding of $25 billion of low-interest loans for factory retooling, a step the industry's allies say does not go far enough to reverse a deepening industry crisis.

Meanwhile, auto parts makers worried that a merger would eliminate vehicles that they supply, and a prominent industry consultant said GM could up to 40,000 Chrysler jobs and 16 of its 26 models.

GM and Chrysler-owner Cerberus Capital Managementhave been in talks for weeks over a merger that would combine struggling automakers hit by a sales downturn that started in the United States and has spread globally.

GM had been lobbying for up to $10 billion in government support in advance of a merger that analysts have said would likely result in thousands of job cuts across the white-collar and blue-collar work forces with plant closings.

GM, Chrysler and Ford Motor Co -- the potential odd-man out if GM and Chrysler get together -- have focused on maintaining cash to withstand the sales downturn and U.S. market share losses.

U.S. auto sales have fallen 13 percent through September and automakers expect to report October monthly auto sales on Monday that reflect the continued downturn.

All three automakers face increased scrutiny from creditors and investors over whether they have the financial strength to ride out the slump, which is now seen continuing through 2009.

PLEAS FOR HELP

The governors of Michigan, New York, Ohio, Kentucky, Delaware and South Dakota sought an immediate response to an auto industry crisis that puts at risk "the financial well-being of other major industries and millions of American citizens.

"The auto industry; their network of suppliers, vendors, dealers and other businesses and the communities that rely on those businesses face unimaginable challenges -- challenges we urge you to address," the letter said.

Michigan Gov. Jennifer Granholm, told reporters that quick loans were needed for the industry to get through the next six to 12 months.

"The bottom line is that all three automakers need some liquidity, some assistance with cash and they need it right now," Granholm said.

"The alternative is worse," Granholm said. "The alternative is the industry doesn't have access to funds and we lose a company or two. We don't want to do that."

The Business Roundtable, a group of chief executives of some of the largest companies in the United States, supported Treasury providing direct capital injections to automakers and their finance companies.

The group sent its letter to President Bush, Federal Reserve Chairman Ben Bernanke and lawmakers.

The massive U.S. auto parts supply base, comprised of a handful of large publicly traded companies and thousands of smaller private independents, also has been worried that a merger might drive even more firms out of business.

An investment banker familiar with the talks said suppliers were in for hard times regardless of whether there is a GM deal because the industry has far too much production capacity.

"A lot of plants have got to get closed," the banker said. "Regardless of government intervention, the impact will still be the same on suppliers."

PARITY FOR FORD?

Ford Motor Co also has had discussions with policymakers and would want some support should the government assist a GM and Chrysler merger, the automaker's president of the Americas told reporters.

"We have ongoing dialogue with policymakers and the powers that be to not only talk about the challenges facing the industry, but also the challenges facing Ford," Mark Fields, Ford's president of the Americas, told reporters.

"We just want to make sure we continue that ongoing dialogue and make sure that whatever happens there is a degree of parity," he said.

Kimberly Rodriguez, principal of Grant Thornton's automotive practice, said a GM-Chrysler merger would not be optimal, but was a good choice under the current circumstances and would require government aid or outside investors to work.

"There remains risks within a combined structure," she said. "There will be a lot of pressure on them to perform."

A Grant Thornton study of the merger potential found 30,000 to 40,000 of Chrysler's employees might be eliminated. The ripple effect could bring job losses in the 100,000 to 200,000 range when taking into account suppliers and dealers.

The study also found the combined company could slice up to $10 billion of costs, mainly in corporate functions such as accounting or information technology, purchasing, research and development and engineering.

(Additional reporting by Soyoung Kim, Poornima Gupta in Detroit, Karey Wutkowski in Washington and Jui Chakravorty in New York)

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