US makers warn of collapse

As merger talks between General Motors and Chrysler continue in Detroit, experts have warned that if either US car giant fails, the knock-on consequences for the industry could be catastrophic.

It’s claimed that, without a merger and potential cash injection from the US Federal government, two of Detroit’s ‘Big Three’ may go under within a year.

Both GM and Chrysler have announced more job losses. New cars have also been postponed in an effort to stem spending.

GM has delayed the Cadillac CTS Coupe, the Buick Lacrosse and now, crucially, the big-volume Chevrolet Cruze, which has been put back until 2011.

Chrysler is currently locked in a legal dispute with transmission supplier Getrag and has been affected by Fiat’s decision to postpone the relaunch of the Alfa brand.

It’s a move that would have seen the Italian firm co-operate with Chrysler and use its US factories to build Fiat Group cars.

Industry analysts point out that both GM and Chrysler are locked out of the credit market and haemorrhaging cash. The success of a merger between the two now may depend on the scale of US government aid.

“Without government intervention it’s difficult to see how the merger makes sense,” said former Ford executive and business expert Louis Lataif.

GM is understood to have asked the US Treasury for financial help to complete the deal. The automotive giant is entitled to some of a $25bn government-funded, low-interest loan package, originally devised to help US car makers build more economical vehicles.

GM and Chrysler must convince the US government that paying to merge the two companies is a better solution than one going bankrupt. But the government doesn’t want to be used to fund redundancies.

"We continue to hold the position that bankruptcy is not an option," said a GM spokesman.

A Chrysler spokeswoman also insisted that bankruptcy is "not an option" for Chrysler "It doesn't make sense for us," she said.

Smaller ‘tier one’ suppliers – the sub-contracted companies who make auto parts and provide services – would be most likely to go under too if either of the big firms collapsed.

Losing these suppliers could start a chain reaction across the global motor industry, stalling the parts supply to European and Asian manufacturers.

The outcome could depend on who becomes America’s new president next week.

Republican candidate John McCain last night declined to support a further $15bn of aid for the American motor industry. “Let’s get the $25bn to them first,” he said.