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UPDATE 1-US Treasury working on aid for GM, Chrysler merger

Mon Oct 27, 2008 2:33pm EDT

The U.S. Treasury Department is considering how to best provide financial assistance to facilitate a possible merger between General Motors Corp and Chrysler LLC, a source familiar with the government's thinking told Reuters on Monday.

The Treasury Department is considering aid of at least $5 billion, which could include direct capital injections and government purchases of auto loans, the source said, speaking on condition of anonymity. A decision on the government aid could come as early as this week, the source said.

The aid would likely be focused on GM and Chrysler and not on Ford Motor Co, which is better off than its U.S. rivals, the source said.

GM has been lobbying the Bush administration for substantial help as it seeks to merge with Chrysler, which is owned by Cerberus Capital Management. Federal aid is considered a requirement for completing the deal, other sources have said.

People briefed on the merger discussions have previously said GM would need a minimum of $5 billion to start restructuring Chrysler's operations. The total amount needed could reach $10 billion, the sources have said.

GM chief executive Rick Wagoner was in Washington last week to press for help after congressional allies, in an urgent plea, urged the Treasury to provide immediate and direct liquidity for Detroit.

Terms of any assistance for GM were not immediately apparent, according to the source knowledgeable about the Treasury Department's thinking. However, Treasury has taken equity stakes as part of its $250 billion capital injection program for several U.S. banks.

A GM spokeswoman declined to comment on possible federal government aid for a merger between the No. 1 U.S. automaker and rival Chrysler.

Representatives of the U.S. Treasury Department were not immediately available for comment.

GM has failed to find an outside investor to help fund its acquisition at a time when global auto sales are slowing and sales in the U.S. market are dropping toward the lowest level in two decades, sources said last week.

UPDATE 1-US Treasury working on aid for GM, Chrysler merger | Deals | Regulatory News | Reuters
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