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Tuesday, October 28, 2008
Government Loan in the Works for GM
FOXBusiness
A government loan is apparently in the works to help ease the way for a merger between struggling auto makers General Motors (GM) and Chrysler.
The Wall Street Journal reported Tuesday that the Department of Energy wants to lend GM $5 billion for the deal.
There is widespread belief both in and outside the auto industry that without a merger two of the three largest U.S. car makers face imminent bankruptcy.
According to reports, GM had about $21 billion in cash on its balance sheet at the end of the second quarter, but was burning through more than $1 billion a month due to being locked out of credit markets.
On Monday, Moody’s Investors Service slashed its ratings on GM, sending it deeper into junk territory.
Merger or not, GM and Chrysler are desperately cutting costs.
GM’s belt-tightening measures announced so far this year include laying off salaried and contract workers, and scaling back on benefits such as 401(k) matching payments.
Chrysler, which has seen its sales fall 25% in the first nine months of 2008, said last week it will cut 25% of its salaried workers, or about 4,300 employees, beginning next month. That’s on top of 1,825 jobs cuts the car maker announced a day earlier through closing a sports utility vehicle plant in Newark, Del., and eliminating a shift at a Toledo, Ohio, Jeep plant.
The combination of a likely global recession that has reigned in consumer spending with the tightening of credit markets has severely limited consumers’ ability to buy cars.
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