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Treasury Secretary Henry Paulson would prefer any funding come from the 25 billion U.S. dollars in low-interest loans approved last month for the auto industry to build more-efficient vehicles, not the 700-billion dollars banking-system rescue, the sources said.
GM executives asked Treasury to consider taking a stake in the company, though the government was reluctant to do so, according to Bloomberg News. Federal aid may boost cash for the money-losing auto makers while they await merger savings that analysts have said may take months to realize. The U.S. auto market may shrink this year to the smallest since 1993 as the credit crunch and a slowing economy crimp demand.
"These companies are both hurting," said Louis Lataif, a former Ford Motor Co executive who is now dean of Boston University's School of Management. "Absent government intervention, it's difficult to see how this merger makes sense."
GM and Chrysler, the third-largest U.S. auto maker, aren't commenting on their discussions, and neither is Cerberus, the buyout firm managed by investor Stephen Feinberg.
The auto makers have estimated that a combination would need .10 billion dollars in new equity to shut plants, cut jobs, integrate operations and add liquidity, the Wall Street Journal reported.
While Congress approved the auto maker-loan program on Sep. 27, money to help convert plants to build more-efficient vehicles may not be available for six to 18 months, and there may be restrictions on how the money can be used.