Detroit: Give Us Bailout Cash To Help Fund Layoffs

Talk of a bailout for Detroit automakers is heating up and plans are starting to crystallize:

WSJ: The auto makers and Michigan political delegations have proposed at least three plans in recent weeks to unlock federal cash for a merged GM-Chrysler, including seeking an equity investment from the government or unlocking funds from its Troubled Asset Relief Program, or TARP.

GM and Chrysler estimate that a combined entity would need $10 billion in new equity to lay off workers, close plants, integrate the two companies and provide liquidity, according to several people involved in the talks or briefed on them.

Take a moment to marvel at that last paragraph. A combined GM-Chrysler would need $10 billion to “lay off workers” and “close plants”. Things have gotten so bad for these companies, that they couldn’t even realise standard merger-related synergies, like layoffs and plant closures without raising $10 billion to do that first. We realise that all that stuff costs money, but it’s still like nothing we’ve ever read before.

All that being said, if the choice is between a merged, slimmed-down GM-Chrysler or two bankrupt companies, will politicians have the stomach to say no. Given all the emphasis on “jobs jobs jobs”, regardless of the effect on productivity, it’s easy to see Washington finding another $10 billion somewhere (like the TARP) to hook them up.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.

Tagged In

cars clusterstock-us