Nov. 3 (Bloomberg) -- General Motors Corp. merger talks with Chrysler LLC may intensify this week as the companies wait to see whether the U.S. will provide financial aid to help complete the deal, people familiar with the matter said.

GM and Chrysler LLC owner Cerberus Capital Management LP still support the combination, and discussions haven't stalled during government negotiations, said the people, who asked not to be identified because the negotiations are private.

GM and Chrysler, pressing for an agreement as a slumping economy and a freeze on auto loans push industry sales toward a 15-year low, don't expect to make significant progress on government aid until after the U.S. election, the people said. Combining the companies would require $10 billion to $12 billion in additional cash to mesh operations, Citigroup Global Markets Inc.'s Itay Michaeli said in a note to investors on Oct. 20.

Financing and a union agreement remain the two biggest hurdles for the merger, people familiar with the talks said. The United Auto Workers union has hired former GM adviser and Morgan Stanley auto analyst Stephen Girsky to assist the union in the talks with GM, Girsky confirmed in an e-mail.

`Lot of Liquidity'

``A combination of these two companies could, in the long run, save them quite a bit of money,'' Standard & Poor's credit analyst Robert Schulz in New York said in a Bloomberg Television interview today. ``However, it's going to take a lot of liquidity in the short run, and we don't see it as a panacea to their problems. It certainly doesn't fix the economic outlook.''

Government loan guarantees might help stabilize the companies, Barack Obama, the Democratic presidential nominee, said in an interview last week on NBC's ``Nightly News With Brian Williams.'' Obama leads Republican Senator John McCain by almost 7 percentage points in the Real Clear Politics average of national polls.

Obama said he would meet with the chiefs of GM, Chrysler, Ford Motor Co. and the United Auto Workers union to develop a plan for an industry overhaul should he win the election, according to a transcript released by NBC.

Cerberus has favored an agreement with Detroit-based GM since the talks started because it would enable the private equity firm to reduce its exposure to manufacturing, people have said. Secondary talks with Nissan Motor Co. about an alliance are on hold pending the GM talks, the Detroit News reported Nov. 1, citing people familiar with the talks.

Unattractive Options

A GM-Chrysler merger ``is only attractive as an alternative to worse alternatives, like bankruptcy,'' John Casesa, managing partner at New York consulting firm Casesa Shapiro Group, said in a Bloomberg television interview today. ``The better alternative is for Chrysler to find a foreign partner - for GM to find a foreign partner - so they get some diversity of sales. But nobody wants to touch them right now.''

GM fell 14 cents, of 2.4 percent, to $5.65 at 4:02 p.m. in New York Stock Exchange composite trading. The shares have fallen 77 percent this year.

GM, Cerberus and Auburn Hills, Michigan-based Chrysler have declined to comment on their talks. GM has lost almost $70 billion since 2004, while Chrysler, the third-largest U.S. automaker, indicated its first-half loss exceeded $1.08 billion. Ford's deficits since 2005 total $23.9 billion.

Low-Interest Loans

Automakers including GM, the biggest in the U.S., are eligible for $25 billion in low-interest government loans to retool plants, while auto lenders may get funding from the $700 U.S. billion bailout of the banking system. The companies and their supporters want to speed plans to dispense the money and ease rules on its use.

GM Chief Executive Officer Rick Wagoner has personally lobbied for aid to help combine GM with Chrysler, people familiar with the discussions have said.

GMAC LLC, which is 51 percent owned by Cerberus and 49 percent by GM, has already succeeded in getting government assistance. The finance unit was one of several companies that were granted access to the Federal Reserve's new program designed to ease access to short-term commercial paper.

GMAC said it is also seeking permission to become a bank holding company to gain access to more of the federal funds.

Treasury Secretary Henry Paulson wants any funding for GM to come from the low-interest loans that will be distributed by the Energy Department, not the banking-system rescue, people familiar with the matter have said. The Energy Department said last week it is still writing rules for the loans.

`Parity' for Ford

Ford would expect ``parity'' should federal aid flow to a GM-Chrysler tie-up, Executive Vice President Mark Fields told reporters Oct. 30 in Dearborn, Michigan, where the company is based.

GM and Chrysler may also need a new agreement with the UAW for union-run medical trusts before the money-losing automakers can complete a merger, people familiar with the matter have said. The need to negotiate such issues gives the union leverage over the outcome, the people said.

UAW President Ron Gettelfinger said Oct. 14 in a Detroit radio interview he wouldn't support a GM-Chrysler merger that eliminated jobs, a result analysts have said is likely because the two companies are losing market shares and may have to pare some of their 11 brands.

Accounting firm Grant Thornton predicted last week that 12,000 union jobs at Chrysler may be eliminated by the merger.

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net;

Last Updated: November 3, 2008 16:32 EST