March 17, 2009 at 1:42 pm

Car team warns fed aid has limit

Rattner tells The News that Fiat, Chrysler decision is up in air.

Rattner )

WASHINGTON -- A top adviser to the Obama administration's auto task force warned that the government won't provide indefinite financial support to the struggling auto industry, while saying the group had made no decision on whether to approve a Chrysler tie-up with Fiat SpA.

"We're not going to put these companies on some kind of indefinite intravenous drip feed of money," Steve Rattner told The Detroit News on Monday. "We need to come out of this with something that makes sense."

Rattner, Treasury Department's top auto adviser, and Ron Bloom, a special adviser to the Treasury on autos and an assistant to the United Steelworkers president, will meet with members of the Congressional Auto Caucus today. Rattner left his job as a managing principal of the $6 billion private equity firm Quadrangle Group to take the Treasury job.

Top GM executives, including CEO Rick Wagoner and Chief Operating Officer Fritz Henderson, held meetings Monday in Washington with the auto task force and with a top German official over the fate of GM's Opel unit.

In a Detroit News interview, Rattner said the government is willing to make investments that the private sector isn't.

"We don't have to necessarily look at the government's money the way when I was a private equity guy I would have looked at private equity money," Rattner said. "We can bend and twist with the government's money to try to facilitate a goal that has both public and private objectives, but it's got to fit within a box. It can't be a black hole. It's got to make some sense."

David Cole, chairman of the Center for Automotive Research, said he thought the Obama administration would provide additional aid to automakers until the credit markets become healthy.

"The cost of the failure on a pure cash basis is too expensive. You layer that on top of the recession, and you might get a depression," Cole said.

Rattner said the government isn't bound by what private investors would do.

"It doesn't necessarily have to be an investment that Warren Buffet would make, but it has to be a prudent use of taxpayer money," he said.

On Monday, Chrysler LLC Chief Executive Bob Nardelli told employees the company is viable without a proposed alliance with Fiat.

"We were asked by the task force whether Chrysler is viable without a global alliance partner. Our answer is absolutely yes (and I am sure you will agree with me), even with a conservative forecast of U.S. auto industry sales trends," Nardelli said in an e-mail to employees.

"During the dialogue, and in the additional data we have supplied in response to their requests, we have continued to emphasize that Chrysler is a viable business on a stand-alone basis and our future is further enhanced through the proposed global alliance with Fiat."

The Obama administration's auto team is scrutinizing the viability plans GM and Chrysler filed with the Treasury Department last month under the terms of their federal loans. The automakers have already received a combined $17.4 billion and have asked for another $21.6 billion. The loan terms also require that the companies further cut costs by securing concessions from the United Auto Workers and persuading bondholders to swap two-thirds of their debt for equity by March 31, the government's deadline for GM and Chrysler to show progress toward viability if they are to receive additional aid.

Advisers working with GM's bondholders submitted a framework for a successful debt-to-equity exchange to Obama's autos task force and GM executives several weeks ago. The framework was consistent with requirements included in the $13.4 billion loan package given to GM, according to a statement late Monday from advisers to the ad hoc GM bondholders committee.

"It provides the best chance, given the parameters set forth in the plan, of completing an out-of-court restructuring by securing a high level of acceptance among a diverse group of GM bondholders -- from mutual funds to pension funds to retail bondholders," the statement said.

The advisers said the framework was one of several options on the table, without divulging details of the options. "We look forward to discussing the merits of any proposal that brings about the fundamental changes necessary to position GM for long-term success. We continue to believe that the best result for all stakeholders -- and for the American economy -- is a viable, competitive GM," the advisers said. "We stand ready to do our part to bring about a workable solution."

GM is also seeking $6 billion in aid from foreign governments.

The German finance minister, Karl-Theodor Freiherr zu Guttenberg, held an hour-long meeting Monday with Wagoner and Henderson at the German Embassy in Washington, which was to be followed by a dinner at the Embassy.

Guttenberg is to meet today with Treasury Secretary Timothy Geithner and Larry Summers, director of the National Economic Council, among others. Geithner and Summers co-chair the auto task force.

GM's Europe unit submitted a plan earlier this month that would partially spin off Opel and British-based Vauxhall into a new subsidiary.

GM's top executives are reaching out to make the case for additional government support. Wagoner will meet with Washington-based reporters today.

Rattner said the administration has a team of roughly two dozen people intensively reviewing GM's books, adding that the team also includes the government's outside consultants at Rothschild Investment Bank, Boston Consulting Group and other firms.

Rattner said the government also was intensively reviewing the aid requests of the nation's auto suppliers for at least $18.5 billion.

"We're not going to put anyone on indefinite life support, but there may be ways we can help. We want to be mindful of the fact that the government can't bail out every company in America that runs into some kind of problem," Rattner said.

"The supplier base is critical not only to the economy of Michigan and Ohio and neighboring states; it's certainly critical to the ability of the auto industry to function."

You can reach David Shepardson at (202) 662-8735 or dshepardson@detnews.com">dshepardson@detnews.com.