Taxpayers are already being asked to bail out Detroit. Do they also have to play investment banker for a GM-Chrysler merger -- as well as help out a private equity giant?
General Motors (GM) since September has been talking to Chrysler's majority owner, Cerberus Capital Management, about acquiring Chrysler [BusinessWeek.com, 10/17/08]. GM management is convinced that acquiring Chrysler's $11 billion in cash, and then gutting the company of redundant jobs, will provide it with the revenue, cash flow, and cash reserves it needs to make it through 2009 and into 2010. Moody's Investor Service (MCO) this week downgraded GM's debt, and reiterated what other rating agencies have said: that GM will run out of operating cash next year without new sources of capital.
Congress is looking to help all three [big U.S.] auto companies, but, as one Capitol Hill staffer puts it: "The package is going to have to look right and smell right, and it is going to have to have the support of the UAW [United Auto Workers]."
The biggest sticking point is the almost guaranteed loss of some 35,000 jobs as a result of a GM-Chrysler merger. GM, says the same Hill staffer, is working out some promises on protecting a certain number of blue-collar jobs, though most of Chrysler's white-collar jobs would be lost.
Read Steve Parker's blog, which argues that the GM-Chrysler job cuts could be up to 70,000 in number.