General Motors Asks Bush for $10bn to Merge With Chrysler

The boss of the US's biggest car maker, General Motors, is personally lobbying the Bush administration for aid of up to $10bn (£6.3bn) to prop up a merger with Chrysler.

Political and economic pressure is mounting on the US treasury to step in to avert the possibility of a bankruptcy of one of Detroit's leading car makers, which could jeopardize hundreds of thousands of jobs. As its woes worsen, GM scaled back financing deals on offer in seven European countries yesterday.

GM's chief executive, Rick Wagoner, has been in Washington to meet officials about a handout. A GM spokeswoman said: "We're in contact with a variety of government officials in light of the extraordinarily difficult economic conditions."

GM's brands include Cadillac, Chevrolet, Saab and Vauxhall. As sales evaporate, analysts believe the loss-making company is burning through $1bn each month and that it could run out of money next year.

In a fresh retrenchment, GM's finance arm announced it would no longer offer any financing deals on motor sales in countries including Spain, Portugal, Greece and Norway, while the rest of Europe will see a "more conservative" pricing policy.

Members of Congress from Michigan are urging the US treasury to act, arguing that the industry is strategically crucial to the US economy. GM wants funds to support integration with Chrysler in a deal viewed as a way to avert the failure of one or other company.

Several scenarios are under discussion. GM could issue preferred stock to the government in return for capital. Alternatively, the car maker may be allowed to tap into the $700bn bail-out fund set up by the treasury to buy distressed assets from struggling banks.

A third option is for the US department of energy to accelerate a $5bn low-interest loan originally conceived as part of a $25bn package to help the motor industry move towards greener fuel standards.

The ratings agency Moody's cut General Motors' credit worthiness deeper into junk territory on Monday, citing "weakening business conditions and rapidly depleting liquidity."

Under the mooted merger, Chrysler's private equity parent company, Cerberus Capital, could swap Chrysler for ownership of GM's finance arm, GMAC.

Not all experts believe this idea is promising. "Merging two companies has generally not been successful in the auto industry, particularly involving large companies," said Efraim Levy, an equities analyst at Standard & Poor's in New York. "To do so at a time of such turmoil compounds the difficulty."

Any government aid is likely to require a pledge from GM that it would restrict the number of job losses caused by a tie-up with Chrysler.

All of Detroit's big three manufacturers - GM, Ford and Chrysler - have been caught by a collapse in demand for large sports-utility vehicles and pick-up trucks. Once the mainstay of the US motor industry, these have fallen out of fashion because of the soaring price of petrol.

The manufacturers employ 355,000 people directly but support an estimated 4.5m further jobs in industries from steel to plastics, electronics and computer chips. The non-profit Center for Automotive Research in Michigan has estimated that a failure of Ford or GM could take a toll of 2% on the gross domestic product and would jeopardize as many as 2m jobs.

In a joint letter to the treasury secretary, Henry Paulson, and the Federal Reserve chairman, Ben Bernanke, politicians from Michigan pleaded for action.

"What America drives, drives America," said Dale Kildee, a Democratic congressman. "It is imperative that the federal government do whatever it can to alleviate this situation."

In another sign of weakening confidence in the industry, the billionaire casinos magnate Kirk Kerkorian has cut his shareholding in Ford, which peaked at 6.5%, to 4.89%, at a likely loss of hundreds of millions of dollars.