A Chevrolet dealer in Castle Rock, Colo. Edmunds projects that G.M. sales will fall 40 percent in October.

DETROIT — A possible merger of General Motors and Chrysler increasingly appears to hinge on federal aid, according to people with knowledge of the merger talks.



G.M. and Chrysler’s majority owner, Cerberus Capital Management, are said to be committed to a merger of the two troubled automakers but have yet to line up financing to inject more cash into the companies.
But investors are hesitant to put money into the deal without federal assistance in some form, possibly a direct loan or an equity stake, said people close to the talks who spoke on the condition that they not be named.
One person said Friday that G.M. was pursuing government assistance. A spokeswoman for the Treasury Department, however, said the rescue package was more focused on financial institutions.
G.M. and Chrysler, two of Detroit’s Bit Three automakers, have been in merger talks for several weeks.
Sales at both companies have fallen drastically this year, and they are furiously cutting costs to preserve cash, which they are burning through rapidly. Speculation is growing about possible bankruptcy.
On Friday, Chrysler’s chairman, Robert L. Nardelli, told employees that more white-collar job cuts would be made beginning next month.
“As we resize the company to reflect declines in volumes, we know we must find new and more efficient ways to conduct our business operations,” Mr. Nardelli said in an e-mail message to workers.
The company said it planned to reduce its white-collar staff of 18,500 by 25 percent by the end of the year.
Salaried workers will be offered buyouts and early retirement packages in the next two weeks. If not enough employees take the offers, Chrysler will start involuntary layoffs beginning in December.
On Thursday, Rick Wagoner, G.M.’s chairman, sent a letter to executives saying that the company would lay off an unspecified number of salaried workers later this year and would cut benefits and cancel bonuses.
In the letter, Mr. Wagoner said the “dramatic impact” on industry sales from the global credit crisis was forcing the cutbacks.
“In this regard, we expect to initiate involuntary separations in some areas of the business, late this year and early in 2009,” the letter said.
G.M. already announced this summer a series of moves to cut its costs by $10 billion.
But the automaker, which lost $18.8 billion in the first six months of the year, is still burning through more than $1 billion in cash a month.
Mr. Wagoner and other G.M. executives are said to be convinced that a merger with Chrysler would provide broad synergies and cost savings.
A merger with Chrysler would also bring G.M. much-needed cash. Chrysler, which has lost more than $1 billion this year, said in June that it had $11.7 billion in cash.
The merger would require new capital from outside investors to cover revamping costs.
Banks and other financial institutions, however, have balked at investing in the deal without some guarantees of government aid.
Washington has already committed to lending automakers $25 billion for new technology to improve the fuel efficiency of their vehicles.
Michigan legislators have also appealed to the Treasury Department and the Federal Reserve to help consumers regain greater access to car loans as part of the $700 billion economic rescue package for Wall Street. Tighter lending standards have made it difficult for many shoppers to obtain financing.
Skepticism about the merger contributed to another tough day for G.M. shares. They fell 2.4 percent, to $5.95.
Cerberus, which acquired Chrysler last year for $7.4 billion, wants an equity stake in a combined G.M.-Chrysler but is not seeking an active role in management, according to two people close to the talks.
The private equity firm also has no interest in forcing out Mr. Wagoner as chief executive in a merger, these people said.
Cerberus may also not seek board seats in the merged company.
Board representation would make the firm a so-called insider under federal securities rules, and limit its ability to sell or increase its stock position.
The merger talks have taken on an increased urgency as the United States vehicle market continues to deteriorate.
Industry sales are down 12.8 percent this year, but they fell 26.6 percent in September.
The slowdown is hurting all carmakers, including Toyota, which said Friday that its global sales fell 4 percent in the quarter that ended in September, its first quarterly drop in seven years.
The United States sales market, according to one forecasting firm, has been even worse in October.
Sales for the month are expected to decline nearly 29 percent from October 2007, and 9 percent from September’s level, according to an analysis by the auto Web site Edmunds.com.
Edmunds projects that G.M.’s sales will fall 40 percent in October compared with last year, and Chrysler will drop by 38 percent. An Edmunds analyst said the merger talks and dire financial positions of the automakers were having some impact on the deepening slide in sales.
“All of the frenzied speculation about the future of Detroit’s automakers, ranging from mergers to bankruptcies, surely adds to the consumers’ retreat from buying a car,” said Michelle Krebs, senior editor of the Edmunds site, AutoObserver.com.
Edmund L. Andrews contributed reporting from Washington.

 

WOW i hope this don't happen

 

Dodge will be dead if this happens.....

 

no more dodge cummins?

 

Can you imagine that day!?! We'll be getting HEMI Cuda prices for our trucks! But god damn I never thought I'd see the day.....

 

G.M.C.hrysler