U.S. Treasury Department Torpedos GM – Chrysler Merger

by Robert Farago

Published: October 31st, 2008

u s treasury department torpedos gm chrysler merger

“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 LP,” Automotive News [sub] reports. Today, we learn that “The U.S. Treasury Department is not negotiating with General Motors and the owners of Chrysler LLC on a request to provide direct government aid to their proposed merger, a Bush administration official said today.” Uncle Sam’s reluctance to grease the deal’s wheels puts it in serious doubt. As in kills it dead. Which raises a familiar question: what the Hell was the point of this merger thing, anyway? There are two main theories. 1) GM viewed Chrysler as a cash grab and 2) GM is/was/wanted to position itself for a massive federal bailout. Proponents of theory two suggested that the feds strongly favored a GM – Chrysler merger so they could then bailout two Dodos with one stone (or something like that), and “save” Chrysler’s jobs. When it became clear that no such jobs rescue was possible, the Treasury balked. Assuming the American Leyland deal doesn’t go down, all that’s left for Chrysler is Chapter 7 liquidation. Yesterday’s Wild Ass Rumor of the Day– which had GM and Renault/Nissan carving-up Chrysler– could well be ChryCo’s pre-C7 valuation process. As for GM, one way or another, they’ll get their own damn bailout. Too big so they failed is still seen in D.C. as too big too fail. At least until the election’s over…

Robert Farago

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4 of 19 comments

Br549 on Oct 31, 2008
If you look at socialist countries you not find welath redistributed to the poorer members of society. They will get a handout or two (like the new washing machines Fidel just gave to Cuban households) but the majority of the wealth will be in the hands of the few, be they governmnet officials or captains of industry. No one pegged this inevitable result better than Orwell in Animal Farm. But since we're having this debate over terminology, I would submit a form of fascism (I know, I know, just hear me out). Definitions are as numerous as belly buttons, but the ideology's Third Position consisting of corporatism, mixed economy, economic planning, etc. are similar to what we are seeing today in the U.S. The term is now hoplessly perjorative, but still has some value if one can set aside Nazi connotations. I'm not arguing here for what the Bush adminsitration is doing in its entirety on the economic front, but simply trying to define it from an historical perspective.

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Adub on Oct 31, 2008

It's socialism: they are taking from one strong company that pays corporate taxes (Exxon) and giving it to a company (GM) that has wracked up so many losses that even if they make money for the next twenty years they won't pay any taxes. I've had expensive vehicles stolen and my father was recently mugged. The only difference between the mugger and the government was grace. Both wanted what somebody else had and took it, damn the consequences.

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Wolven on Oct 31, 2008

Hey RF, Is there some reason ChryCo can't do CH11? I think that would be their best bet.

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Robert Farago on Oct 31, 2008
Wolven : Chapter 11 is protection from your creditors that assumes you have a viable business (a.k.a. exit strategy). No one in their right mind would make that argument now. And the ones that could will be drifting away on their golden parachutes.

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