Why might auto industry get federal bailout? Jobs

General Motors reported a $2.5 billion loss in the third quarter and warned Friday that it could run out of cash in 2009 if the U.S. economic slump continues and it doesn't get government aid.

GM also said it has suspended talks to acquire Chrysler. While it didn't specifically name the automaker, GM said it was setting aside considerations for a "strategic acquisition."

And Ford said Friday it lost $129 million in the third quarter as the struggling automaker burned through $7.7 billion in cash and set plans for more job cuts.

Ford said it will eliminate about 2,260 more white-collar employees in North America as it battles weak demand, the credit crisis and the worst economic downturn in decades.

On Thursday, top executives with GM, Ford and Chrysler, along with the president of the United Auto Workers, made their pleas to House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid on Thursday for a rescue package.

Detroit's automakers may end up getting taxpayers' money for a simple reason: jobs.

Here is a look at why the companies are seeking a federal bailout and the challenges they face in getting government funding.

Q. Why are the auto companies asking for the government's help?

A. The automakers have been hurt by the weakened economy, the credit crunch and consumers' shift away from profitable sport-utility vehicles.

U.S. auto sales declined last month to their lowest level in more than 17 years. As a result, the companies are running out of cash — GM and Ford said Friday that they burned through a combined $14.6 billion in the third quarter. GM warned it could run out of cash in 2009.

Q. What are GM, Ford and Chrysler asking for?

A. A combined $50 billion in government funding. The companies asked congressional leaders this week for $25 billion in loans to help it survive the economic decline and another $25 billion to help cover some of its health-care obligations for 780,000 retirees and dependents. The funding could come from the $700 billion government federal bailout of the country's financial sector, or from the Federal Reserve.

Q. How would this auto bailout differ from the government's bailout of the nation's banks?

A. The main difference is that under the financial bailout, the government has invested billions of dollars directly into banks in return for an ownership stake. For the auto industry, discussions haven't centered on the government taking partial ownership of the companies.

The Treasury Department has limited participation in the $700 billion bailout to financial companies that can then use the money to make loans. Some analysts think the auto-financing companies would have to convert to banks or thrifts to be eligible.

Q. Why is Congress considering a bailout for the auto industry?

A. Simply put, jobs. For every job in an assembly plant, there are 7.5 jobs with auto-parts suppliers and other companies, meaning the industry accounts for millions of jobs. In a grim prediction, the Ann Arbor, Mich.-based Center for Automotive Research estimated that about 2.5 million jobs across the economy would disappear in the first year if the U.S. auto industry shrunk by 50 percent.

Q. Would the government play a role in a merger between GM and Chrysler?

A. GM said Friday it had suspended talks with Cerberus Capital Management, the majority owner of Chrysler. The companies held private talks because GM reportedly coveted Chrysler's $11 billion in cash, but any deal would have required government financing. Discussions with the Treasury Department were unsuccessful.

Q. Didn't the automakers receive government funding earlier this year?

A. Yes. Congress approved a separate $25 billion in low-interest loans to U.S. automakers and suppliers to help them build more fuel-efficient cars to meet tougher fuel economy standards. But the funding is not expected to arrive until sometime next year and the companies say they're running out of time.

Q. Can the auto industry expect help from the incoming Obama administration?

A. During the campaign, President-elect Obama was supportive of the $25 billion loan program for fuel-efficient vehicles and said he would double it to $50 billion. Obama said Friday that his transition team would explore ways of helping the industry, but he hasn't taken a position yet on any bailout of the car companies.

Q. If the government helps the companies, what will taxpayers get in return?

A. Auto-industry officials say any help would come with strings attached and expectations of full repayment, with interest, on the loans. Possible protections include a limit on executive compensation, awarding the government preferred stock in the companies and a suspension of dividends to investors.