The credit crisis is changing the Corporate American landscape for good. And the auto industry is leading the way. First soaring fuel prices and then the threat of recession have crippled US sales for the ‘Big 3′ this year. Now William Patalon III says a high-risk merger between General Motors (NYSE:GM) and Chrysler could be derailed by financing difficulties. Will the Fed be called upon to stump up the cash again…?

This from Money Morning:

The No. 1 U.S. automaker, General Motors Corp. (NYSE:GM), has been burning through more than $1 billion per month, and now wants to buy Chrysler Corp., in order to access the privately-held automaker’s cash hoard. But in the current credit environment, raising the financing for the merger of two companies that have been generating billions of dollars in losses and burning through cash like a California wildfire burns through acreage is tantamount to financial alchemy. GM’s initial attempts to secure financing for the controversial merger have been rebuffed, raising new doubts about whether the buyout can be completed without government aid, Reuters reported late yesterday.

“It’s like a Kabuki dance,” a source familiar with the talks told Reuters. “Everybody already knows the outcome. They are going to have to go to the Fed for money.”
GM Chief Operating Officer Frederick A. “Fritz” Henderson and the executive team leading talks with Chrysler’s majority owner Cerberus Capital Management LP believe GM can strike a deal to pick up Chrysler’s best assets and shore up its own cash position in the process, the news service said.

Chrysler has $9 billion in debt that would have to be paid off immediately if it can’t be refinanced, thanks to a “change-of-control” provision the debt carries. Additionally, a cash-strapped GM needs between $4 billion and $5 billion to shutter most of Chrysler’s 14 assembly plants and to finance the severance packages for the estimated 30,000 to 40,000 jobs that would be eliminated because of the merger, reports state.

GM is drooling over Chrysler’s war chest of cash – about $11.7 billion as of June 30 – which it could grab with the merger’s completion.

Some would have to be used to pay off Chrysler’s debt, if it isn’t restructured – an action that is also expected to be challenging.  GM had about $21 billion in cash on hand as of Jun 30, but is burning through that cache at a rate of $1 billion a month.

General Motors execs believed the automaker would be able to make it through 2009 by raising as much as $5 billion through a combination of borrowing and asset sales. But the locked-up credit market made this an almost-impossible task. To put that additional funding in perspective, GM’s market capitalization was only $3.7 billion as of Monday.

Source: Although Bank-to-Bank Loan Rates Fall for the Sixth Straight Day, Only the Strong Will Survive