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When Chrysler was near death and awaiting a government bailout in 1979, then-CEO Lee Iacocca ordered drastic spending cuts and required all checks above $1,000 to be approved by a senior vice president.

Chrysler LLC and General Motors Corp. need to follow the same play book now, industry analysts and management professors say, as they try to outlast the debate in Washington over whether they will get billions in government loans.

With no hope of getting credit elsewhere and auto sales at a 25-year low, both automakers are perilously close to having only the minimum amount of cash needed to operate.

Today, with GM alone spending $6.9 billion more than it took in last quarter and having operations in 34 countries, Iacocca's $1,000 limit might not be practical. But industry analysts and bankruptcy experts say both companies must take similar measures to ensure their companies live long enough to use any loans they get.

"You turn the electricity off. You do things like shut the proving grounds down," said Jim Hall, managing director of 2953 Analytics of Birmingham, Mich.

Top executives of GM, Chrysler and Ford Motor Co. went to Washington this week seeking roughly $25 billion but ran into so much opposition that Congress delayed voting on the bailout until the automakers prove they can be viable.

They must submit a plan to Congress by Dec. 2, followed by more hearings before any vote is taken. That means money won't be available at least until late December, probably not until early next year.

Meanwhile, the companies face huge expenses and a lack of revenue because car buyers are having trouble getting financing or are delaying big purchases because of uncertainty about their jobs. October was the worst U.S. auto sales month in 25 years, and November is looking only slightly better.

Chrysler CEO Bob Nardelli told the Senate Banking Committee his company had $6.1 billion in cash at the end of the third quarter after burning up $1 billion in cash per month from July through September.

GM fared worse. It burned up $6.9 billion last quarter and about $6 billion in the first half of the year and has warned that it could reach its minimums sometime next month.

Ford, while burning through billions as well, has a big stockpile of borrowed money and says it can last at least through 2009.

But without aid soon, GM and Chrysler will have trouble paying bills and may have to seek bankruptcy protection.

Inside both companies' headquarters, teams likely are looking to cut spending any way they can, including delays in new investments, experts say.

"They have to take really drastic steps in their cost-cutting," said Robert Wiseman, a Michigan State University professor who teaches strategic management. "Stop buying everything except for the most critical things they need for their operation."

GM announced Friday it is canceling its traditional holiday party for the media "due to the very difficult economic situation facing the nation, the state, the industry, and our company." The party will be replaced by a $5,000 donation to a journalism scholarship fund.

At Chrysler, Nardelli testified, there's a cash committee that scrutinizes requests every week.

But what they're doing now may not be enough. Some in Congress criticized the CEOs for flying to Washington on separate corporate jets. GM is reducing its leased fleet from seven planes last year to three, but the stigma remains.

Lawmakers also rapped the automakers' high labor costs and particularly the jobs bank, in which laid-off workers get 95 percent of their pay plus benefits even though they aren't working.

The United Auto Workers said it has cut the jobs bank and placed time limits on it in new contracts signed with the companies last year. Still, more than 3,500 workers are getting paid for not working, and that number is sure to rise as the companies continue to cut jobs.

On Friday, GM announced it would extend holiday shutdowns and make other production cuts at five North American factories. It also accelerated the closure of a truck plant in Oshawa, Ontario.

Harlan Platt, who teaches corporate turnarounds at Northeastern University in Boston, said GM should turn to the UAW for help.

"The bank right now is the union, and they're going to have to give up something in the near term so they have something very valuable in the long term," Platt said.

Initially the UAW said it already gave up a lot in the new contracts, agreeing to lower wages for new hires and to shift the companies' huge retiree health care costs to a union-administered trust.

But on Thursday, President Ron Gettelfinger softened his stance, saying that the union is at the bargaining table already.

"We would welcome all the other stakeholders to the table to make some concessions," he said.

In Washington, House Speaker Nancy Pelosi said lawmakers are trying to get reassurances that the companies have a specific plan to survive before the government hands over taxpayer money. But that might be troublesome for the automakers.

GM Chief Executive Rick Wagoner told reporters Thursday that the company already has shared a detailed plan confidentially with the Bush administration and key staffers in Washington. He's concerned that sensitive information could be made public.

"Historically things like your future product plans, technology plans and financial plans would be competitively sensitive information, and so for a variety of reasons, we wouldn't be sharing that publicly," he said.

Douglas Baird, a professor who specializes in bankruptcy at the University of Chicago Law School, says the automakers were too vague, giving Congress less information than companies normally give lenders when seeking bankruptcy financing.

"That's not the way you approach a lender in a work-out. That's just not the way it's done," he said.

Wagoner, he said, will have the difficult task of showing Congress how GM can be viable with its current structure.

"That's not going to be easy to do," he said.

Photo Illustration: Arthur Eves/BW; Image: Getty Images

The U.S. government is poised to keep any of Detroit's automakers from going bankrupt, and lawmakers and the companies are looking for every avenue for Uncle Sam to provide the companies with fresh capital (BusinessWeek.com, 10/28/08). The moves, expected to help General Motors (GM) pull off its acquisition of Chrysler, may require passing new legislation during next month's lame-duck session of Congress.

Michigan's senior U.S. Senator Carl Levin told BusinessWeek on Thursday, Oct. 30, that one new and surprising avenue being discussed to keep the companies solvent is passing an amendment to last month's continuing budget resolution bill signed by President Bush, which also included a $25 billion loan package for auto companies to retool assembly plants to make more fuel-efficient vehicles. The amendment, said Levin, could seek to offset billions the automakers have already spent to develop hybrid, electric, and smaller cars to market in the next few years, rather than restricting the loans to offset investments in 2008 and 2009. Such a move would be an almost instant cash infusion for GM, Chrysler, and Ford (F).

The scramble is on for the quickest source of funds. When GM Chief Executive G. Richard Wagoner Jr. met with government officials this past week, he found a hospitable reception. But GM sources say no conclusion was reached on an aid package.

Moving the Money Fast

That's why Levin and other politicians in states whose economies rely on the auto industry are trying to hurry things along. Levin said efforts by his office and the rest of the Michigan delegation, backed by several governors and lawmakers in other states with auto and auto-parts factories, center on either getting the $25 billion to the automakers faster than is called for in the bill, or getting them help along with banks and insurance companies in the Emergency Economic Stabilization Act (EESA) passed earlier this month. "Tapping into the Economic Stability Act has an advantage in that [the Treasury Dept.] and the Federal Reserve have the flexibility, but the advantage of the continuing resolution is that it is targeted at the auto industry," said Levin, who is polling far ahead of his Republican opponent in Tuesday's election.

The Michigan senator said passing new legislation next month would be "complicated." But, he added, "My job is to keep as many options on the table as possible."

If money isn't secured by the end of Congress' lame-duck session in November, the Chrysler deal could be in jeopardy, sources close to the negotiations say. Meantime, lawmakers are trying to find a way to give the automaker a hand without setting a precedent that the government is ready to bail out every struggling company in the nation.

And it's not just the U.S. government that's weighing rescuing its automakers. On Oct. 29, representatives from the European Union announced it would back a request for $50 billion in low-interest loans for its struggling auto sector (BusinessWeek.com, 10/30/08). Such a package, if enacted, could give a competitive advantage to European carmakers—adding pressure for Congress to come up with a U.S. solution.

DETROIT (AP) -- General Motors Corp., Chrysler LLC and Cerberus Capital Management LP have held preliminary talks about a merger or an acquisition of Chrysler by GM, according to a person familiar with the talks.

Chrysler, which is 80.1% owned by Cerberus, already has a joint venture with GM making a hybrid gas-electric powertrain, and has discussed a full merger or acquisition with GM, said the person, who did not want to be identified because the talks have not been made public.

The Wall Street Journal, citing people it described as familiar with the discussions, reported that Cerberus, a private equity firm that also owns 51% of GMAC Financial Services, proposed trading Chrysler's automotive operations to GM in exchange for GM's remaining 49% stake in GMAC.

The New York Times, also citing people familiar with the talks, reported that the automakers were discussing a merger. GMAC, primarily an auto lender, also has significant mortgage lending operations that have been hit hard by the crisis in that industry.

The talks have stalled because of the recent turmoil in the financial markets, according to the Journal. Its sources said negotiations could resume if markets stabilize because both GM and Cerberus want to quickly divest the assets under discussion.

The negotiations between 100-year-old GM and 83-year-old Chrysler began more than a month ago. The Times said its sources pegged the chances of a merger being completed at "50-50."

"Without referencing this specific rumor, as we've often said, GM officials routinely discuss issues of mutual interest with other automakers," GM spokesman Tony Cervone said in an e-mail.

"The company is looking at a number of potential global partnerships as it explores growth opportunities around the world," Chrysler said in an e-mailed statement issued Friday night. "Beyond those partnerships already announced, however, Chrysler has not formed any new agreements and has no further announcements to make at this time."

Making history. A tie-up between the automotive giants would be historic for the industry and solidify GM's position as the global sales leader, which it has been in danger of losing to Toyota Motor Corp.

GM and Toyota finished 2007 essentially even in vehicles sold worldwide. This would not be the first time Detroit's automakers have explored mergers.

GM talked with DaimlerChrysler AG in 2007 about acquiring Chrysler before Cerberus made a deal to acquire most of the automaker, but the talks fell through when GM decided it should concentrate on cost savings and efficiencies by globalizing its own operations.

In 2005, GM and Ford Motor Co. reportedly held talks regarding a potential business combination. Cerberus acquired its GMAC stake in 2006 for $14 billion and bought 80.1% of Chrysler from Daimler AG in August 2007 in a $7.4 billion deal.

Cerberus and Daimler confirmed last month they are in talks for Cerberus to acquire Daimler's remaining Chrysler stake.

The auto industry has been hit hard in recent weeks by the effects of the credit crisis, prompting GM and Ford to issue statements Friday to dispel the notion that they might be headed for bankruptcy.

GM and Ford shares were battered with the rest of the stock market this week, falling to lows not seen in decades. GM (GM, Fortune 500) shares lost about half of their already-depressed value during the week, closing at $4.89 on Friday. Ford shares fell similarly, ending the week at $1.99.

GM said Friday, in response to the stock price, that it is nor considering a bankruptcy filing.