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Feds Move Closer to Carmaker Bailout

Government plans stock buy to goose GM/Chrysler merger

By Mark Huffman
ConsumerAffairs.com

October 28, 2008

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First it was the banks that needed government help from falling over the cliff, now it's U.S. carmakers.

The Treasury Department is said to be considering a move to provide help to General Motors and Chrysler, as they seek a merger. The cable TV business channel CNBC quotes two sources with direct knowledge of the talks as saying the two car companies have asked for roughly $10 billion.

According to the report, the U.S. government would get some $3 billion in stock of the combined company, that could be sold later to recoup some of the taxpayers' help.

Other funds might be available as well. The Wall Street Journal reports that the Energy Department is also trying to free up funds for the proposed merger and the White House said Monday that the car companies might qualify for some of the $700 billion Congress approved to bail out the banks.

It's not just the companies and their stockholders who are pushing the idea of an automotive bailout. Labor unions representing employees at the car plants like the idea too, pointing out that the industry directly employees 350,000 Americans. The auto industry also provides indirect support for another 4.5 million workers.

The car companies have multiple needs. For one thing, they need operating capital just to stay afloat, as economic worries keep consumers out of new car showrooms. Financing is another problem. With credit drying up, its harder for people who want to buy a new car to find financing.

Administration officials suggest one way the government could support the industry is to provide liquidity for the carmakers' financing companies – GMAC Financial Services, Ford Motor Credit Co. and Chrysler Financial.

Should that happen, consumers might be lured back into the showrooms in early 2009 with the promises of slashed prices and generous financing.

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