GM and Chrysler to merge, Chrysler to disappear

UPDATE #11 This rumor is downgraded to 'false' today. General Motors Corp. and Cerberus Capital Management LP have called off talks about a possible deal to transfer Chrysler LLC's automotive operations to GM. "GM has recently explored the possibility of a strategic acquisition that it believed would generate significant cost reduction synergies and substantially strengthen GM's financial position in the medium and long term, while being neutral or modestly positive to cash flow even in the near term," the Detroit automaker said Friday in a statement outlining fresh cash saving measures. "While the acquisition could potentially have provided significant benefits, the company has concluded that it is more important at the present time to focus on its immediate liquidity challenges and, accordingly, considerations of such a transaction as a near-term priority have been set aside." Sources close to Cerberus confirmed the talks had been suspended.

10/30/08 There is a chance that there could be an agreement between General Motors Corp. and Chrysler LLC by Tuesday that would result in half of Chrysler’s assembly plants closing and 24,000 lost jobs, Kimberly Rodriguez, principal of Grant Thornton’s automotive practice, said today.

Such a deal would require a total of at least $10-billion in assistance from the federal government and investments from other stakeholders.

“I do think there is substantial advantage to it getting done before Tuesday," Rodriguez said at a news conference where Grant Thornton’s advisory and restructuring practice presented a study called, “The State of Chrysler."

After Tuesday, Election Day, the Bush administration officially enters a lame-duck transition period for the next president, which could change the political dynamics. Also, Rodriguez said, the faster a deal happens, the faster the changes can be made at plants during shutdowns scheduled for December.

“I just think it gets more costly," as time goes by, she said.

Key findings of Grant Thornton’s report are as follows:

• Seven core models are likely to survive: Dodge Ram, Dodge Caravan, Chrysler Town & Country, Dodge Charger, Dodge Caliber, Jeep Wrangler and Jeep Grand Cherokee.

• Half of Chrysler's 14 existing manufacturing facilities could close.

• Dealer consolidation efforts will intensify. Chrysler and GM combined have 22,000 franchises.

• Hundreds of supplier companies would be impacted, which could result in the loss of an additional 50,000 jobs.

“I think this is going to be a joint pain effort," Rodriguez said.

Although the toll will be heavy, Rodriguez said the benefits may outweigh the worst-case scenario, which would be a bankruptcy, and said a GM-Chrysler deal has several potential benefits:

GM can combine its overseas strength and hybrid technology with Chrysler’s seven key models that account for 56% of its sales.

“Chrysler’s utilization of its facilities is very low," said Lars Luedeman, a manager at Grant Thornton. “If you can close seven of those 14 facilities in relatively short order, you can see areas where the Jeep Wrangler, the Grand Cherokee, that is coming on in 2010, are very high volume, very good products."

The combined company will have more liquid assets, thanks to the cash on Chrysler's balance sheet.

Significant cost-reduction opportunities will be possible, especially in sales, marketing and administrative functions.

“Chrysler as we know it will cease to exist very soon," Rodriguez said. “At this point, there are very few options available to either company. We believe a transaction between GM and Chrysler is likely because it would be the most expedient way to protect cash and jobs at both companies."

10/27/08 General Motors Corp. Vice Chairman Bob Lutz said this morning there is no timetable to strike a deal to acquire rival Chrysler LLC and he declined to address most other questions about a potential deal between the two Detroit auto companies.

"There is no timeframe at all for having anything definitive," Lutz said following a speech at the 2008 Public Relations Society of America International Conference at the Renaissance Center.

Sources close to the deal have previously told The Detroit News that GM and Chrysler want to get a deal.

Lutz reiterated today that bankruptcy would not solve GM’s problems.

“Bankruptcy for GM certainly is not an option," Lutz said this morning while speaking to the Public Relations Society of America. “The board has never talked about it."
GM is burning through immense amounts of cash and has suffered this year as automotive industry sales have declined.

“It’s not something that we consider would be constructive or would solve any problems for anyone," Lutz said.

10/20/08 The only scenario seemingly not on the table for Chrysler LLC is the status quo as pressure mounts to decide the fate of Detroit's No. 3 automaker.

The Auburn Hills automaker's owner, Cerberus Capital Management LP, wants to rid itself of Chrysler as soon as possible, and key players at would-be buyer General Motors Corp. are embracing the urgency.

But getting a deal done won't be easy, even if the two automakers agree.

A GM-Chrysler tie-up could face significant regulatory roadblocks, lawsuits, congressional hearings and protests by the United Auto Workers.

It would face a review of up to a year by either the Federal Trade Commission or the Justice Department, said Ted Bolema, a former antitrust attorney with the Justice Department and a Central Michigan University law professor.

"The two companies would control about one-third of the light-vehicle market. That's getting up there in market concentration," he said. More at Detroit News

10/18/08 Cerberus Capital Management LP founder Stephen Feinberg, a driving force behind the negotiations to combine General Motors Corp. and Chrysler LLC, is pushing for a rapid deal before both automakers are weakened further in this treacherous environment, say sources familiar with the situation.

GM President Frederick Henderson and Vice Chairman Bob Lutz also want to conclude an agreement quickly, the sources said. Chairman and CEO Rick Wagoner is said to subscribe to the logic of such a deal but seems more guarded about the prospect of putting together two money-losing automakers facing similar challenges, the sources said. Some GM directors share those concerns.

The parties met Friday, but Feinberg was not directly involved with the talks. The negotiations have been complicated by the disclosure last week that they were taking place even though they were at a preliminary stage. But officials on both sides want to conclude a deal quickly — preferably before the presidential election on Nov. 4, when candidates might be more amenable to requests for help.

Cerberus and GM declined to comment.

Under one scenario being discussed, GM would absorb Chrysler and draw on its cash hoard — $11.7 billion on June 30 — to wind down some of its businesses, brands and dealerships to slash costs.

The other potential suitor for Chrysler, the Renault-Nissan alliance, is weighing whether to continue negotiations in this tricky financial climate.

Feinberg is said by people close to the talks to favor a deal with GM as a solution to the U.S. auto industry's mounting difficulties.

Detroit's automakers are losing money and their market value has shrunk dramatically. According to the assessment of major banks, the U.S. automakers are not able to invest sufficiently in future products and technology to remain competitive, and they cannot obtain credit in this climate.

Their dire situation poses a problem for major banks, including Bank of America, Citibank, J.P. Morgan Chase and Wells Fargo, whose combined exposure to the industry runs into the tens of billions of dollars, said one source close to the situation.

The automakers' weakness also has reduced the value of Cerberus' automotive holdings, including Chrysler, acquired last year from Daimler AG for $7.2 billion, most of which was injected into Chrysler.

"It's a way for Cerberus to get out before it all blows up," said Joe Phillippi, president of AutoTrends Consulting Inc. in Short Hills, N.J.

"When Cerberus put this deal together, they felt this would be a medium-term holding" of five to seven years, he said.

"When they were doing their scenarios, I'm sure they never anticipated the industry would go from 17 million to 13 million or less (annual U.S. sales) in a very few short years, while they're still trying to right-size the industry."

After obtaining $23 billion in credit lines and loans in 2006, Ford Motor Co. is considered the best equipped to withstand a prolonged recession and a weak auto market. However, GM and Chrysler are viewed as more vulnerable in this downturn, with bankers assessing that the risk of bankruptcy may not be high but it is "meaningful," according to the source.

Sources close to the situation stress that many possibilities are being explored.

Feinberg's view, according to people familiar with the situation, is that GM and Chrysler should pair up before they are irreversibly weakened.

GM, which lost $18.8 billion in the first half of this year, is burning through at least $1 billion a month, analysts estimate.

It had access to about $21 billion cash and $5 billion in available credit at the end of June, and is in the midst of cutting $10 billion in costs by the end of 2009 and raising $5 billion through asset sales and borrowing. But analysts say it may run short of cash as the industry environment worsens.

Investment firm Goldman Sachs estimates U.S. auto sales will slide next year to 13 million cars and trucks from 13.8 million this year. In a note issued Friday, Goldman said it expected the market to recover only to 14 million units in 2010 — compared with 16.1 million last year.

"We think lower affordability will materially impact auto sales," analyst Patrick Archambault wrote in the report. "Our base-case estimate is for a reduction in 'trend demand' to an average of 14 million units over the next several years versus our previous estimate of 16 million."

While union leaders have spoken out against a GM-Chrysler deal that could ravage Chrysler, industry insiders say some union and management officials consider that a deal, while painful, may spare the industry worse pain.

"The most brutal thing is companies going down," said David Cole, chairman of the Center for Automotive Research in Ann Arbor. "What the union has to have more than anything is sustainable, profitable employers."

A source familiar with the situation said some reports had overstated the GM board's reservations to a Chrysler deal.

Cerberus, meanwhile, is interested in obtaining the remainder of GMAC Financial Services after having bought 51 percent from GM in 2006. GMAC is hoping to benefit from the government's purchase of bad loans from financial institutions.

Part of the pressure on Cerberus comes from investment banks, which were "very comfortable with Cerberus running GMAC, but uncomfortable with Cerberus being in the auto business." The Detroit News

10/16/08 General Motors Corp. could swallow Chrysler LLC and end the Auburn Hills automaker's 83-year existence under one scenario being discussed by GM and Chrysler's owner, Cerberus Capital Management LP, said a source briefed on the talks.

Such a deal, similar to Chrysler's 1987 acquisition of American Motors Corp., would allow GM to pick up some of Chrysler's 2.7 million in annual sales — while avoiding the bulk of Chrysler's costs, the source said.

GM, Cerberus and Chrysler all declined to comment.

Sources familiar with the negotiations say the talks still are in early stages, and many combinations are being considered.

Analysts say a deal along the lines of Chrysler's purchase of AMC, which eliminated Detroit's No. 4 automaker as an entity and all its brands except Jeep, would make sense for GM.

10/13/08 Chrysler LLC Chairman and CEO Bob Nardelli told employees today that the privately-held automaker had been in contact with other parties "interested in exploring future possibilities with Chrysler" but said no new agreements had been reached.

"I can tell you that we have approached and have been approached by third parties who are interested in exploring future possibilities with Chrysler," Nardelli said in a memo sent to Chrysler employees early today.

"As the company evaluates strategic options to maximize core operations and leverage its assets, we engage in a dialogue with these parties. We do so keeping in mind our vision, our mission, and the best interests of those who have shown tremendous support for this company — including you, our employees, dealers, suppliers and customers."

"Last week was marked by news headlines unlike anything most of us have seen in our careers," Nardelli wrote in his note. "Global financial markets are in turmoil and continue to seek stability as governments work to restore confidence in their banking and financial institutions. Here in the United States, on the heels of record-low consumer sentiment and the mortgage crisis, the credit crunch now presents a more serious issue to the automotive industry than four-dollar-a-gallon gasoline," the note said.

"Other headlines you may have seen over the weekend reported that GM and Ford (Motor Co.) had been talking about a merger, and also that there is a possibility of one between Chrysler and GM."

10/13/08 Cerberus Capital Management LP is interested in acquiring full ownership of GMAC Financial Services in potentially far-reaching discussions with General Motors Corp. that could involve a merger of two of Detroit's three automakers, according to sources familiar with the talks.

But analysts and industry executives were highly skeptical of any deal involving a merger of GM's automotive operations with those of Chrysler LLC.

"If this were to take place, the winner would be Cerberus," which would benefit by combining the financial operations, said Maryann Keller, a longtime analyst and head of Maryann Keller & Associates in Stamford, Conn.

A source familiar with the preliminary talks said Saturday that Cerberus wanted to acquire the remainder of the GMAC mortgage and auto loan unit that it already controls and shed Chrysler's automotive operations.

Cerberus and GM declined to comment. More at Detroit News

10/13/08 General Motors Corp. approached Ford Motor Co. about a possible merger prior to contacting Chrysler LLC, according people close to the situation.

Though there were direct communications between GM CEO Rick Wagoner and Ford CEO Alan Mulally, those talks never evolved into actual negotiations.

"There were never in-depth, substantive discussions that went on," said one of those sources, who spoke to The Detroit News on the condition of anonymity. "It was more an expression of interest, as in, 'Do you want to talk?' "

Ford said no.

The Dearborn automaker would not officially comment on the reports, but sources familiar with Mulally's thinking on the topic told The News that such a tie-up would be contrary to his plan for saving Ford. More at Detroit News

10/11/08 This Detroit News article goes into more detail about a possible merger scenario between GM and Chrysler.

10/11/08 So, Chrysler LLC is talking with General Motors Corp. about merging, eh?

That means Jeep would join forces with Hummer, when no one is buying SUVs.

And Dodge and Chrysler brands could sell alongside Buick and Pontiac and GMC in a five-point -multi-channel system full of brands that can't survive on their own.

Both companies have way too many dealers and too many employees and too many plants now. So the combined entity would have way, way, way too many dealers and workers and buildings.

That some form of GM-Chrysler tie-up is even under serious discussion — as some well-wired people tell me it is — is a surefire indicator of just how desperately some people want to exit the automobile business.

By some people, I mean Cerberus Capital Management, the 80.1% owners of Chrysler, who by now have concluded that the auto business — a challenge in the best of times — is now nothing but a giant bonfire of burning dollar bills. With two years of extremely weak sales staring the U.S. industry in the face, Chrysler — the company most dependent on the U.S. market and with the weakest lineup of oversized vehicles — is in dire straits.

GM and Ford Motor Co., of course, aren't in much better shape.

And maybe GM sees in Chrysler some minivans it can sell, and a Jeep brand that might still have a bit of international cachet.

But the headaches? All the plants to close, all the tortuous discussions with the UAW, all of the possible litigation with dealers. It's too horrible to contemplate. Detroit Free Press

10/11/08 General Motors Corp. and Chrysler LLC have held preliminary talks about a merger or an acquisition of Chrysler by GM, according to published reports Saturday.

General Motors and Chrysler recently held preliminary talks about a merger, according to published reports.

The Wall Street Journal, citing people it described as familiar with the discussions, said Cerberus Capital Management, the private equity firm that owns 80.1 percent of Chrysler and 51 percent of GMAC Financial Services, proposed trading Chrysler's automotive operations to GM. The Journal said Cerberus would receive GM's remaining 49 percent stake in GMAC.

The New York Times, also citing people familiar with the talks, said the automakers were discussing a merger. The Times did not mention GMAC, a traditional auto lender hit hard by the housing market downturn.

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, according to the Times. Its sources said the chances of a merger were "50-50" as of Friday and likely would take weeks to complete.

Both newspapers posted their stories on their Web sites late Friday.

"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.

"The company is looking at a number of potential global partnerships as it explores growth opportunities around the world," Chrysler spokeswoman Lori McTavish said. "Beyond those partnerships already announced however, Chrysler has not formed any new agreements and has no further announcements to make at this time." AP Story