Topic: Cerberus and General Motors: Lets Heart Each Other

[Bezor]

G.M. and Chrysler Explore Merger
            
 
By BILL VLASIC and ANDREW ROSS SORKIN
Published: October 10, 2008

DETROIT — General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the auto industry by reducing the Big Three of Detroit automakers to the Big Two.




David Zalubowski/Associated Press
General Motors and Chrysler are both struggling to sell vehicles as the economy sours.


The talks between G.M. and Cerberus Capital Management, the private equity firm that owns Chrysler, began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were “50-50” as of Friday and would most likely still take weeks to work out.

A merger would be a historic event, with two of the most iconic names in American industry coming together to survive in an increasingly difficult environment. Both have roots dating back decades in Detroit and, with Ford, long dominated the auto industry — until Japanese and other foreign car makers began making inroads into the American market.

The auto industry is being pummeled from all sides — by high gas prices that have soured consumers on profitable S.U.V.’s, by a softening economy that has scared shoppers away from showrooms, and by tight credit that is making it difficult for willing buyers to obtain loans. Both G.M. and Chrysler have been struggling with product lineups that are out of sync with consumer demand for smaller, more fuel-efficient cars.

General Motors’ stock has fallen from more than $43 a share last year to less than $5, and it is burning through its cash hoard at a rapid rate. Chrysler, as a private company, no longer needs to report its finances.

The meetings between General Motors and Cerberus began more than a month ago, said people familiar with the discussions, and the companies have held several talks involving their most senior executives. Given that both G.M. and Chrysler are struggling, the two sides may determine a merger may not be in their best interests.

The exploratory talks have included debates over various calculations of the savings that would result from a merger, these people said, but neither side has yet to dig into each others’ private financial books and records.

At the same time, Cerberus is continuing to hold talks with other automakers including Nissan and Renault, said people familiar with the discussions. It is unclear at what stage those discussions have reached.

Speculation about a possible bankruptcy filing by G.M. has mounted in recent weeks because of the automaker’s dwindling cash reserves. The automaker had $21 billion in cash on hand at the end of the second quarter, but it was burning through more than $1 billion a month.

The credit rating firm Standard & Poor’s put G.M. on negative credit watch on Thursday.

But G.M. has said it is confident that it can increase its liquidity, and emphasized in a statement released Thursday that it was not considering a bankruptcy filing.

G.M. once commanded about 50 percent of the American vehicle market, but its share so far this year has fallen to 22 percent, according to the research firm Autodata. Chrysler had a market share of about 15 percent before its acquisition in 1998 by Daimler, but its share this year has dwindled to 11 percent.

How government and labor might react to a potential merger of G.M. and Chrysler is unclear. Antitrust questions could be raised, but political issues could be overshadowed by the precarious financial prospects of both automakers.

If G.M., the nation’s largest automaker, combined operations with Chrysler, the smallest of Detroit’s Big Three, they would create an auto giant that would surpass Japan’s Toyota Motor Company, which recently has been battling G.M. for bragging rights as the world’s largest automaker.

A G.M. spokesman declined to comment on any specific talks with Chrysler. “Without referencing this specific rumor, as we’ve often said G.M. officials routinely discuss issues of mutual interest with other automakers,” said the spokesman, Tony Cervone.

There was no immediate comment from Cerberus.

People briefed on the deal said the talks started as an exploration of possible joint venture opportunities between G.M. and Chrysler.

Cerberus acquired an 80.1 percent stake in Chrysler in August 2007 for $7.4 billion from the German automaker Daimler AG.

Under the terms of the deal being discussed, Cerberus would end up owning an unspecified equity stake in G.M.-Chrysler, people briefed on the talks said.

The ramifications of the merger would be enormous in the global auto industry. G.M. and Chrysler together would control more than 35 percent of the United States vehicle market, and be by far the dominant producer of pickup trucks, sport utility vehicles and minivans.

It would also marry such iconic American brands as G.M.’s Chevrolet and Cadillac with Chrysler’s Jeep and Dodge divisions.

However, the potential merger carries enormous risks. Both G.M. and Chrysler are struggling mightily in what is the worst market for vehicle sales in the United States in 15 years.

People close to the discussions said that if the prospective deal did not happen, Cerberus would probably look to Nissan and Renault.

But the marriage of G.M. and Chrysler has far more potential than hitching Chrysler to a foreign automaker. While G.M. and Chrysler may be hamstrung by labor contracts from cutting jobs, the two companies could combine dealers, product lines and advanced vehicle technology.

Bill Vlasic reported from Detroit and Andrew Ross Sorkin from New York. Michael J. de la Merced contributed reporting.

[GRAYWOLF]

By BILL VLASIC and ANDREW ROSS SORKIN

That's quite a pickle!!!! (sorry...)



I hope this doesn't happen...ChryCo has the only decent cars coming out of Detroit outside of the Vette/Camaro/Mustang. GM would waste no time killing off the 300/Charger/Challenger!

[Otto Puzzell]

I hope this doesn't happen...ChryCo has the only decent cars coming out of Detroit outside of the Vette/Camaro/Mustang. GM would waste no time killing off the 300/Charger/Challenger!

I couldn't disagree more. Top to bottom, GM has the strongest entries of the Detroit 3, in every vehicle sector. (IMNSHO)

[GRAYWOLF]

I couldn't disagree more. Top to bottom, GM has the strongest entries of the Detroit 3, in every vehicle sector. (IMNSHO)

I'm not saying they are bad vehicles, it's just that they are very pedestrian. Same with Ford...some times it is difficult to tell one brand from another...You see one of the (I believe it is called the) LS platform, you know what it is.

[Tifosi]

Man, this is weird...as the son of a retired Chrysler worker,  it's almost anathema!  When I was a kid in the '60's, GM was the enemy...we hated Chevys, Pontiacs, Buicks, Oldsmobiles and Caddys with a passion!  Now, they might be our stepbrothers.  Times have certainly changed!

The idea of a merger does have some merit, though...Jeep would be a prize for any automaker, and the Chrysler minivans are a big plus, as well.  I don't see any products being dropped from the lineup as long as they sell, so the 300 should be safe; and the Charger would be, too...NASCAR might lose the Dodges, though.

I could see the end of Buick, maybe...but that's about it.

But it's still weird...


Dan




























Dan

[GRAYWOLF]

The idea of a merger does have some merit, though...Jeep would be a prize for any automaker,

Now that you mentio0n it....that would put Jeep and Hummer back under the same roof, again!

[Bezor]

What ever merger takes place, it will depend on a huge amount of cash, does GM have it to buy up Cerberus?    In the meanwhile, Cerberus has been talking like a good venture capatalist and may spin off success names, Viper, one Jeep perhaps another.  Perhaps Cerberus sees more money to be made selling individual pieces rather than the whole company.

And if GM does come up with the credit (toughs times even for them), how will buying Cerberus give them a leg up?  The Chryco minivans, long time winners, are rebadged V.W.s.  Viper? In this day and age of eco-consumerism?  Jeep has an awesome torque monster of a motor that isn't available in the U.S.  What would GM be getting out the deal, more of a headache rather than a leg up?

I don't see it happening. 

[Otto Puzzell]

Three of Cerberus' most recent large acquisitions have been dogs (pun intended). Chrysler financial is losing its shirt on leases built on residual values that have evaporated. GMAC is in the same boat, plus they have a lot of mortgages going sour, to boot. And Chrysler LLC has, outside of the aging 300 and charger, some truly awful product to sell. I don't see this deal going through. There may be logic to it, but I'm not seeing it.

By the way, VW's minivan in the US is a rebaged Chryslers - not the other way around. 

[Bezor]

Three of Cerberus' most recent large acquisitions have been dogs (pun intended). Chrysler financial is losing its shirt on leases built on residual values that have evaporated. GMAC is in the same boat, plus they have a lot of mortgages going sour, to boot. And Chrysler LLC has, outside of the aging 300 and charger, some truly awful product to sell. I don't see this deal going through. There may be logic to it, but I'm not seeing it.

By the way, VW's minivan in the US is a rebaged Chryslers - not the other way around. 

Yup.

And my minivan sentence does read wrong.