Think it’s hard securing a line of credit for a new home? Try purchasing an entire automaker. Though GM seems plenty interested in scooping up Chrysler for some extra cash, it may have trouble financing the deal.
Though GM’s finance teams believe they can strike a deal with Chrysler’s parent firm, Cerberus Capital Management, Automotive News reports the automaker was repeatedly declined financing for such a takeover. While GM had approximately $21 billion on hand at the end of the second quarter of 2008, its operating costs have averaged approximately $1 billion each month.
That might make things difficult when trying to purchase Chrysler. Sources suggest GM wants access to the $11.7 billion Chrysler has at hand, but there’s a matter of debt. Chrysler’s reportedly $9 billion in the hole, and if those debts can’t be refinanced, they may have to be paid outright.
In addition, GM would possibly be $4-5 billion poorer following a proposed merger. Eliminating approximately 40,000 jobs may help streamline operations, but it would force a combined GM-Chrysler to fork over quite a few payouts as a result.
So what’s next? Both parties have allegedly approached other firms to finance a deal (a move met with “a great deal of apprehension”), but may have to rely upon government aid.
Whether the Federal Reserve – which has already bankrolled Bear Stearns, AIG, Fannie May, and Freddie Mac – would have the funds or interest to save such a merger remains to be seen.
Source: Automotive News