Oct. 31 (Bloomberg) -- General Motors Corp.'s pursuit of federal aid ahead of a merger with Chrysler LLC gathered momentum as six governors and presidential candidate Barack Obama prodded the government to help the auto industry.

The remarks by Obama and the release of a letter from the state leaders to Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson ratcheted up the pressure for action yesterday. Financing is among the hurdles in talks for a GM-Chrysler tie-up that may help both companies survive.

``When, what, where, I don't know, but I think the government has decided they cannot have a crash,'' said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan.

Automakers including GM, the biggest in the U.S., are eligible for $25 billion in low-interest loans to retool plants, while auto lenders may get funding from the $700 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 with Cerberus Capital Management LP's Chrysler, people familiar with the discussions have said. The merger talks come as the credit crunch freezes auto buyers' access to credit and sales plunge toward a 15-year low.

`Immediate Action'

Bernanke and Paulson should take ``immediate action'' to get available funds to the industry, the state leaders wrote. The alternative is ``disaster,'' said the governors of Michigan, Ohio, Kentucky, Delaware, New York and South Dakota.

``We should not leave the automakers out,'' South Dakota's Michael Rounds, a Republican, said in a Bloomberg Television interview. ``They are a critical part of our economy. They have an impact on every single state in the United States.''

Government loan guarantees might help stabilize the companies, Obama, the Democratic presidential nominee, said in an interview scheduled to air last night and again today on NBC's ``Nightly News With Brian Williams.''

Obama said that should he win next week's election, 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, according to a transcript released by NBC.

GM, Cerberus and 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.

Paulson's Preference

Paulson would prefer any funding for Detroit-based GM 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 yesterday it is still writing rules for the loans.

Combining GM with Auburn Hills, Michigan-based Chrysler would require $10 billion to $12 billion in additional cash to integrate operations, Citigroup Global Markets Inc.'s Itay Michaeli wrote in a note to investors on Oct. 20.

Should federal aid flow to such a tie-up, Ford would expect ``parity,'' Executive Vice President Mark Fields told reporters yesterday in Dearborn, Michigan, where the company is based.

The government needs to take action, said Kim Rodriguez, who leads accounting firm Grant Thornton's automotive restructuring group in Southfield, Michigan.

``Chrysler as we know it will cease to exist very soon,'' she told reporters at a briefing yesterday.

A GM victory in its quest for federal funds probably would assure a tentative merger agreement before the Nov. 4 election, Rodriguez said. Yet even with a merger, the industrywide disruptions would include the loss of 74,000 jobs at Chrysler and its suppliers and the closure of half of the company's plants, Grant Thornton estimated.

Michigan had the nation's second-highest unemployment rate in September at 8.7 percent, trailing only Rhode Island at 8.8 percent.

GMAC's Move

With automakers struggling to revive sales and profits, the vise on the industry was underscored by auto lender GMAC LLC, which has begun telling some dealers it will no longer provide the financing they need to buy vehicles.

The move by the Detroit-based finance company, which is 49 percent owned by GM after the automaker sold the rest to Cerberus in 2006, threatens to shutter auto retailers across the country.

``GMAC is going to zap them of their existing capital,'' Peter Welch, CEO of the California New Car Dealers Association, said in an interview. ``You could see a lot dealers going out of business,'' he said.

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

Last Updated: October 31, 2008 00:01 EDT