NEW YORK/DETROIT, USA - For Detroit's cash-strapped automakers, this is the calm before the storm.
The survival of the troubled U.S. industry now depends on the outcome of the U.S. presidential election and a resumption of lobbying by the Detroit automakers, the United Auto Workers union and auto parts suppliers for a desperately needed federal aid package.
Most immediately, the shape and scope of any federal rescue could determine whether Chrysler LLC is merged with General Motors Corp, spun off into parts or pushed toward bankruptcy, according to people involved in still-developing talks between Chrysler's private equity owner and other automakers.
Both presidential candidates, Democrat Barack Obama and Republican John McCain, have expressed support for federal assistance for the auto industry but have not committed to any specific proposals. Obama, who is supported by the UAW, is widely seen as more sympathetic to the industry's plight.
Ford Motor Co, which mortgaged its assets in 2006 to raise $23 billion, is in the strongest position of the Detroit Three. But Ford's top U.S. executive, Mark Fields, has said that Ford would want "parity" in any federal aid offered to GM and Chrysler.
The Bush administration said last week that it was working to expedite the delivery of up to $25 billion in already approved low-cost loans to help automakers retool older factories to make more fuel efficient cars.
But the industry now needs a bigger cash infusion and one with fewer strings attached to ride out a downturn in sales that has run beyond the darkest forecasts of just a few months ago, advisers and political allies of the automakers say.
The UAW has pushed for another $25 billion in low cost loans to offset health care costs. Other suggestions from GM and Chrysler include tax incentives for new car buyers, but the final form of any industry rescue package will now be up to the next administration.
GM and Chrysler's owner Cerberus Capital Management last week suspended work toward a merger that would combine the loss-making auto operations of the No. 1 and No. 3 U.S. automakers, sources with knowledge of those talks have said.
GM had pushed for up to $10 billion in U.S. government aid to support an acquisition of Chrysler, according to the sources, who were not authorized to discuss the talks.
GM's senior leadership remains interested in pursuing the deal, depending on the terms of federal aid made available, the sources said.
DON'T FIRE THE TAXPAYERS But the lobbying effort led by GM Chief Executive Rick Wagoner for merger-related aid hit a dead end with the Bush administration last week amid concern about the tens of thousands of jobs that would be lost in a deal.
"You can't ask for taxpayer money for a merger and then go out and fire the taxpayers," said one person familiar with the merger discussions.
There is also another problem of politics and perception: federal aid for a Chrysler deal, which GM had sought through the U.S. Treasury Department, risks being seen as a bailout for Cerberus, a secretive Wall Street firm that is chaired by former Treasury Secretary John Snow.
"If the government has to do something - and that's a big if - I would rather see the money go to GM rather than to support a messy merger with Chrysler," said Robert Salomon, a professor of business at New York University, who has written to Congress in opposition to any such deal.
"As a taxpayer, I don't like to see the U.S. government bail out a private investment fund like Cerberus," he said.
Cerberus acquired an 80.1-percent stake in Chrysler from Daimler AG in 2007 with the aim of restoring it to profitability and funding its way through the turnaround with new borrowing.
But the credit market crisis has shut down the ability of Chrysler and its larger rivals to borrow, while a plunge in auto sales to 25-year lows has increased the rate at which the automakers are burning through cash.
"We need a cohesive response to get the economy kind of shored up here. And GM can't do it alone. The industry can't do it alone," GM's head of North American sales, Mark LaNeve, said on Monday in announcing a 45-percent drop in the automaker's October sales.
GM and Chrysler could not be immediately reached for comment. Both automakers have declined to discuss their merger talks and both have ruled out bankruptcy as an option.
But analysts, including some bankruptcy experts, have questioned whether that decision will be management's to make if a federal rescue package is not made available.
"I think Chrysler is really on its last legs," said Dartmouth business professor Richard D'Aveni, who said a court-supervised bankruptcy could represent the best option for Chrysler.
Meanwhile, the White House has shifted responsibility for weighing any help to automakers to the Commerce Department, which is headed by Carlos Gutierrez, former chief executive of Michigan-based cereal giant Kellogg Co.
Detroit's allies in Congress have said they hope to leverage an abbreviated legislative session planned for later this month to consider aid for the automakers. Prospects for action, however, depend entirely on the mood of lawmakers and the White House after Tuesday's election.
"I think it's a bankruptcy or a bailout at this point," said one financial adviser with knowledge of the GM, Chrysler talks. "With sales at this level, I don't think it can be anything else."
(Additional reporting by John Crawley in Washington; Editing by Phil Berlowitz)
