The requests for handouts keep right on coming: Chrysler seeks to tap relief funding.

Chrysler’s financing unit is in talks with the US government to change its status in a way that will allow it to tap into the troubled assets relief programme and other sources of credit.

The Detroit carmaker, which received $4bn in government aid on Friday, said on Monday that Chrysler Financial first applied three years ago to be classified as an “independent lending corporation” and that the talks have recently intensified.

Unlike GMAC, General Motors’ financing arm, Chrysler Financial is not seeking a bank charter. Even so, Ron Kolka, chief financial officer, said the proposed new status would “give us multiple sources of funding and cheaper sources of funding for the finance company”. He did not elaborate.

With their first federal loan cheques in hand, GM and Chrysler are entering complex talks with creditors, unions and others on restructuring measures aimed at convincing Washington they can become more competitive and financially viable companies.

They will be seeking deep concessions from bondholders, dealers, suppliers and the United Auto Workers’ union to satisfy conditions of $17.4bn of emergency bridge loans approved by Congress last month.

GM said it was talking to unions and its talks on debt would pick up pace over the month. Chrysler has already been talking to suppliers, dealers and the UAW for the past month.

GM took the first $4bn installment of its loan on Wednesday and was due to receive another $9.4bn by mid-February.

The carmakers need to present detailed restructuring plans by February 17 and demonstrate they can achieve a positive net worth by the end of March to secure additional taxpayer funds aimed at securing their survival.

According to GM’s 10-Q it has assets of $110 billion (some of which are highly questionable, notably the stated value of inventory and property), and liabilities of $169 billion.

Stockholders deficit after factoring in a few extra items is -60 billion. And that was as of September 30th.

GM has been bleeding cash badly since then. When you lose money on every car you make, and you are starting $60-$70 billion in the hole, the odds of coming up with a plan to become profitable any time soon are extremely unlikely to say the least.

Nonetheless General Motors Claims It May Not Require Further U.S. Loans to Survive.

General Motors Corp. has enough government loans to cover the worst-case scenario it described last month and says it won’t need more if the economy holds up.

[Now there’s an escape clause if I ever saw one. The odds of the economy “holding up” are essentially zero. – Mish]

“The U.S. Treasury’s $13.4 billion bridge loan to GM, coupled with the separate transaction for GMAC, meets our liquidity needs under the scenarios outlined in our December plan to Congress,” GM spokesman Greg Martin said yesterday.

GM is trying to win concessions from its biggest union, cut its debt level in half, and trim brands and dealerships as part of a restructuring plan to show it will be able to repay the money. A progress report is due Feb. 17 to the Treasury Department, and a final report is due March 31. If the plan doesn’t pass government scrutiny, GM has to repay the loans.

GM received the first $4 billion Dec. 31 from the Troubled Asset Relief Program administered by Treasury. GM is spending that money to pay bills, mostly to its 3,000 suppliers, said spokeswoman Renee Rashid-Merem.

The automaker is due to receive an additional $5.4 billion this month. Should Congress agree to release a second $350 billion in TARP funds, GM will get $4 billion more in February.

The Treasury Department also gave Chrysler LLC $4 billion Jan. 2 to help it stay in business and said Dec. 31 it has drafted broad guidelines for aid to the auto industry that would let officials provide funds to any company they deem important to making or financing cars.

GM’s losses have amounted to almost $73 billion since 2004. Chrysler says its first-half loss, the most recent information available, totaled $1.08 billion.

Chrysler is 80.1 percent owned by Cerberus Capital Management LP, which also owns 51 percent of GMAC.

Because it’s closely held, Chrysler isn’t required to release financial results and Chrysler said yesterday it still doesn’t plan to release financial information to the public after getting $4 billion in U.S. loans last month. The terms of the loans require it to release that information to the Treasury department.

If GM or Chrysler is unable to develop a viable business plan, the U.S. loan terms also allow the funds to be used as so-called debtor in possession funding to keep operating in bankruptcy. Both automakers have said bankruptcy would result in their liquidation because they wouldn’t be able to get such loans from private banks.

Notice how Chrysler is not releasing is financial statements even though taxpayers are already on the hook for $4 billion. To top it off, Chrysler Financial wants still more handouts after it becomes an “independent lending corporation”.

The government desperately wants more lending and I have just the solution. Let’s all apply for aid as “independent lending corporations”. If approved, lending is sure to pick up. Then we can sit back and bail out the economy while getting rich lending each other money. Wait a second, didn’t we just try that with subprime and Alt-A loans?

Mike “Mish” Shedlock
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