Cerberus Capital Management LP, wading into the politics of a U.S. auto-industry bailout, would give up any profit on a future sale of Chrysler LLC should the company receive federal financial aid.

Chrysler also expects the U.S. government to take a stake in the company in any rescue, CEO Bob Nardelli said yesterday. Federal backing for a merger between Chrysler and General Motors Corp. was discussed before GM ended talks last week, people familiar with the matter said.

The no-profit pledge may help ease opposition in Congress to helping the industry, because Cerberus is a buyout firm. Cerberus founder Stephen Feinberg “has basically gone on record saying he would forfeit” profit from a sale under a bailout, Nardelli said at a conference in Palm Desert, California.

“This is a sign they need the money and are willing to do anything to get it,” said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. Taxpayers won’t want to let “a private-equity fund reap the profit,” he said.

Chrysler, which isn’t required to report financial results, has indicated it lost at least $1.08 billion in the first half. Cerberus acquired 80.1 percent of the automaker from Daimler AG in 2007 for a $7.4 billion investment, about a fifth of what the Germany company paid for Chrysler nine years earlier.

Source: Bloomberg

So it would seem that Cerberus has no intention of not selling most of their stake in chrysler.  If Nissan had some to the table with more than 20% in their offer Cerberus probably would have taken more time to consider that deal.  For now we’ll have to settle for Chrysler making Nissan’s Titan and Nissan making a small car for Chrysler - if Chrysler is still around.

The US Treasury has told GM that no, it can’t have anymore billions of dollars, not yours.  GM was hoping that the bailout money would come before the election (or is it Cerberus that is on an accelerated time table?) in the amount of 10 billion.  So far the US has bailed out financial institutions (both GMAC and Chrysler Financial qualify) but has yet to aid any other sector.

The reason for the bank bailout is clear, if the banks fail then no more credit is available and no one can spend any money and we all get to see how our grandparents lived back in the 30s.  Even that bailout is not popular among many in the US, indeed, much of the money is going to bonuses to already really rich guys that ran their bank into the ground.  So when another big corporation like GM comes to the US government and asks for some money the US is reluctant to say the least.

GM is a more sympathetic recipient than banks are, but not by much.  One could argue that the bailout would save manufacturing jobs in the US at a time when outsourcing is the norm.  Even though GM would have to slash about 50,000 jobs from Chrysler immediately, in the long run it saves the biggest automaker in the world.  Better to see one absorbed than both die off.

There are two problems with giving taxpayer money to GM.  First, it is not clear that GM and Chrysler will both fail if left separate.  No one has made a convincing argument there.  And (still part of the first reason) it is not clear that the combined company will succeed.  I have yet to see a convincing argument that shows me the combined GM/Chrysler company make it through the next few years of poor sales.

The second problem with US aide here is if they give it to GM/Chrysler for a merged company they also have to give it to Ford, and eventually anyone that comes begging.  The line of companies in trouble will never end, better to draw the line at the banks and be done with it than see the government as a partial owner in every sector in the US market.

According to a Wall Street Journal report, talks between General Motors and Cerberus/Chrysler are “floundering” as GM is having a tough time finding investors who would be willing to finance any deal between the two US automakers.

General Motors and Chrysler have been suggesting a plan that would save $10 billion while at the same time 40,000 jobs at a combined company.  Backers of the deal between the two car companies think that the combined company would produce $250 billion in annual revenues, with sales around 30% of the US market.

Of course there’s also the $10+ billion in cash that Chrysler holds and the combined company would hold about $30 billion in cash, improving GM’s credit rating and helping the company get through the next couple years of being in the red.

While the plan seems like a no brainer at first glance, many potential investors are having trouble accepting that a deal would do anything for either GM or Chrysler.  The WSJ puts it, lenders remain fearful of the complexity and scale required to combine two massive industrial companies given extreme uncertain in the credit markets. The article points out that if investors continue to be wary of the deal, executives may need to bring the plan in front of the US government, hoping for a possible intervention.

Sources say they are unsure of what role the government would take in the event of a deal, but believe that a government stake in the combined automaker would be “very important”.