Questions Surround Auto Industry Aid

Oct. 29, 2008— -- 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.

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."