Questions Surround Auto Industry Aid

It's official: Automakers and the government are talking about measures to aid the ailing U.S. auto industry -- but exactly what shape that aid will take seems to be anyone's guess.

"It's right now in such a state of flux, it's going to depend now what the automakers can convince the government to do," said Aaron Bragman, a research analyst for the economic analysis firm Global Insight in Detroit. "It really is at a turning point, I think, in the American auto industry."

Slumping auto sales and the tight credit market have led many to question whether the country's top automakers -- General Motors, Ford and Chrysler -- are headed toward bankruptcy. Financial pressures have reportedly prompted GM, which analysts say is burning through $1 billion a month to survive, to seek to acquire or merge with Chrysler.

auto worker

At a press conference Tuesday, White House spokeswoman Dana Perino confirmed that General Motors and Chrysler "have been in contact with the administration on various levels," but she would not say whether the two companies were in merger talks.

GM and Cerberus Capital Management, which owns a majority stake in Chrysler, declined to comment.

Politicians and analysts have been buzzing about at least three possible measures to help domestic automakers:

Government backing for a GM-Chrysler deal: GM is seeking $10 billion in government funding to support a purchase of Chrysler, Reuters has reported. In return, the government would get some preferred stock in the newly-combined automaker, the report said, citing unnamed sources.

While the possible combination of GM and Chrysler has been derided by some analysts, others have said that GM could benefit from Chrysler's sizeable cash reserves and market share.

"I think one of the intents here is to help the consolidation for the industry with Chrysler becoming part of GM," said David E. Cole, chairman of the Center for Automotive Research. "How this is likely to play out and the timing of this is unclear, but I think the bottom line is the industry is going through a dramatic restructuring."

Same loans, new use: Analysts say that the easing of restrictions on the $25 billion government loan guarantee program approved for the auto industry earlier this month could help automakers stay afloat. The package was initially aimed at helping automakers upgrade their plants and build more fuel-efficient cars.

"If the automakers can use that money for much more flexible ways, it'll go a long way toward helping them out," Bragman said.

But it's unclear whether the program's restrictions will actually be relaxed and how long it will take for the loans to go out. Department of Energy Press Secretary Healy E. Baumgardner said the government was still writing the rules for the loan program and has yet to receive any applications from the automakers.

"It is premature to estimate a timetable for when the loans will be available or to discuss any monetary amounts at this point," Baumgardner said in an e-mail statement to ABC News.

Troubled asset relief: Perino said that the U.S. Treasury Department would determine whether U.S. automakers and their finance arms are eligible for the Troubled Asset Relief Program, a government program to buy up troubled loans from financial institutions. The program, commonly known as TARP, was approved earlier this month as part of the government's $700 billion financial rescue package.

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