Auto bailout talks reach critical week

Washington Post

WASHINGTON — General Motors, Ford and Chrysler continue to lobby Congress for a $25 billion loan program to steer them through the economic slowdown and credit crisis to 2010. They argue that by then, new union contract provisions, new vehicle models and a better economy will make them profitable again.

In addition to talking to members of Congress, who want evidence that the company has a plan for viability, GM has been talking to United Auto Workers representatives, outside lawyers and Georgetown Law School professor Daniel Tarullo, a key member of President-elect Barack Obama’s transition team.

People familiar with the talks say that the coming week will be critical. The Detroit automakers are due to make their case to Congress for $25 billion in new assistance. It will also be closer to the time that GM might start running short of cash, according to some analysts.

Bondholders are already expecting the worst. GM bonds due Jan. 15, 2011, with a 7.2 percent coupon were selling at 27 cents on the dollar Wednesday, giving them an effective yield of 89.45 percent — indicating a strong expectation of default or renegotiation.

Advocates of a merger between GM and Chrysler might try to revive that plan. The J.P. Morgan analysts say Congress might approve a short-term bailout to provide GM with enough cash to survive until Obama takes office in January, when he and a new Congress could devise a second, longer-lasting rescue package.