GM seeks $10 billion in aid for merger: sources

By Jui Chakravorty Das and Kevin Krolicki

NEW YORK/DETROIT (Reuters) - General Motors Corp (GM.N) has asked the U.S. government for roughly $10 billion in an unprecedented rescue package to support its acquisition of Chrysler LLC from Cerberus Capital Management CBS.UL, sources familiar with the talks said.

The government funding would include roughly $3 billion in exchange for preferred stock in a merged automaker, according to one of the sources, who was not authorized to discuss the matter publicly.

The U.S. Treasury Department is considering a request for direct aid to facilitate the merger and a decision could come this week, sources familiar with the still-developing government response said on Monday.

The request for federal aid is being led by GM. The automaker's chief executive, Rick Wagoner, was in Washington in recent days to lobby administration officials.

Cerberus has not been involved in any of the lobbying efforts, a source familiar with the matter said.

GM has been in talks with Cerberus about buying Chrysler since last month but the discussions have been snagged by difficulty in securing investment or financing at a time when credit is tight and global auto sales are in rapid retreat, others close to the talks have 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 has been widely seen as the merger's best chance for success.

"The automakers are facing a maelstrom and that's why I think an unprecedented government infusion could happen," said Efraim Levy, an automotive equity analyst with S&P.

An injection of $3 billion in equity to support a GM acquisition of Chrysler would be roughly equivalent to the current, depressed value of the top U.S. automaker.

It would also give U.S. taxpayers a large stake in the turnaround of a struggling auto industry that employs more than 350,000 American workers and is credited with supporting employment for another 4.5 million in related fields.

Analysts perceive GM, Chrysler and rival Ford Motor Co (F.N) as driven to the brink of failure by a combination of management missteps, slowing global growth and problems in credit markets.

Now, in addition to taking a stake in what would be the world's largest automaker by volume, the U.S. government is also being asked to provide support by taking over some $3 billion in pension obligations, the first source said.

The final component of the proposed support would be a credit line that could include U.S. government purchases of commercial paper to relieve short-term pressure on liquidity, the person said.

GM could not immediately be reached for comment. Cerberus and Chrysler had no comment.

TOO BIG TO FAIL?