Hey Paulson, Can You Spare a Dime?

The more stories that I read about GM/Chrysler merger talks, the more it becomes evident that absent some amazing feat of according wizardry, combining these two auto makers is going to require the involvement of the U.S. government. Now of course, there are other options: Cerberus could chop up Chrysler into many different components or a healthier automaker could step into the breach and make an offer. However, if there is anyone out there besides GM and Renault/Nissan expressing interest in Chrysler, I sure haven't read about it. Getting back to my original point, it is likely that teams working on merger options have already have asked the Treasury Department for financial aid. The question then becomes, where would the money come from? The $25 billion already earmarked for automakers (albeit for a different purpose) or the $700 billion TARP fund which was originally targeted for the banking system but now seems to be attracting interest from all sectors? If money was committed to the merger, how would it be injected? For example, would the government buy preferred shares?

There are many who would ask, "Where does it end? Where does the government draw the line?" Well, I think it can be assured that wherever the Feds do draw the line, GM and Chrysler will be on the money side of the boundary. Why? There's just too much at stake here. If GM and Chrysler drown, they'll take any number of suppliers with them. Those suppliers will in turn be unable to supply healthier automakers who will then have to scramble for parts. The whole auto industry is so interconnected by these supplier linkages, it's almost like there is this rope tied around each of their ankles. From above the waterline you can't see that rope, but if things go sour and one or two automakers drown the other manufacturers could be sucked down into the abyss.

source: bloomberg