Treasury not negotiating aid for GM merger

WASHINGTON (Reuters) - The U.S. Treasury Department is not negotiating with General Motors Corp and the owners of Chrysler LLC on a request to provide direct government aid to their proposed merger, a Bush administration official said on Thursday.

Instead, the administration is working to speed the distribution to automakers of $25 billion in factory retooling funds authorized by Congress last month, the official told Reuters.

Earlier this week, industry sources said GM had asked for roughly $10 billion in an unprecedented government rescue package to support its acquisition of Chrysler from Cerberus Capital Management.

The request was viewed as over and above the $25 billion in funds to enable the automakers to produce fuel-efficient vehicles.

"Treasury is not negotiating with the automakers, the administration is working to get the $25 billion Congress already authorized to the industry," the official said.

A GM spokesman had no immediate comment.

The Treasury did confirm that automakers' financial companies, such as GMAC LLC and Chrysler Financial, would qualify to sell distressed assets to the Treasury when it launches reverse auctions under its $700 billion market bailout plan.

However, the finance arms would have to be registered as federally regulated bank holding companies for them to qualify for a capital injection under the $250 billion equity purchase portion of the program.

GMAC said on Thursday it was seeking the bank holding company designation.

GM has been lobbying for Treasury help and outside pressure on the government grew earlier on Thursday. Governors of Michigan and five other states urged the Treasury and the Federal Reserve to help the distressed U.S. auto industry.

GM, Ford Motor Co and Chrysler have faced increased scrutiny over their cash positions by creditors and investors who have questioned whether they have the liquidity that they need to ride out a severe slump in U.S. auto sales seen continuing through 2009.

Without federal assistance, the pressure from increased unemployment claims and diminished tax revenue from the "economic crisis" facing automakers "threatens to create an unmanageable disaster at the state level," the letter said.

Michigan's congressional delegation, led by House of Representatives Energy and Commerce Committee chairman John Dingell, has been lobbying the Bush administration hard to free up liquidity for industry. They suggested that direct capital injections might be appropriate.

The $25 billion in loans approved by lawmakers last month are dedicated to helping Detroit meet a government mandate to make more fuel efficient vehicles.

Bush administration officials said this week they are working hard to accelerate the timeframe for making those loans available to automakers. Regulations needed to administer government loan programs can take six to 18 months to finalize.

The Energy Department is writing those regulations for the auto loans and said on Thursday it was working as fast as possible to complete the effort.

Attempts to speed that process even further could be made when Congress returns for a short period after next week's election, lawmakers have said.

Separately on Thursday, Ford Motor Co is having ongoing discussions with policymakers and would expect a "degree of parity" if the administration wound up helping to facilitate a GM merger with Chrysler.

GM has been in talks with Cerberus since September about a merger with Chrysler.

Sources familiar with the discussions said Wednesday the two sides agreed on the major issues, but the final form of any deal would depend on government financing and what form it would take.

Without new borrowing or asset sales, GM is in danger of running dangerously low on cash in 2009, analysts have said.

The Bush administration has been reluctant in the past to entertain the notion of an automaker bailout. But it has held talks in recent weeks with industry officials -- including GM chief executive Rick Wagoner -- about some measure of help with the global credit crisis hurting Detroit especially hard.

(Reporting by David Lawder. Additional reporting by John Crawley, David Bailey and Kevin Krolicki; Editing by Diane Craft)