Daniel Howes: Commentary
One of Big 3 may not survive
The truth about Detroit's painful automotive transformation, marked by new products, concessionary labor deals, asset sales, plant closings and job cuts, is that none of it will be enough soon enough.
Instead, a global credit crisis, plunging consumer confidence and abysmal corporate finances are forcing once-proud companies and their senior executives to flail for even more disruptive answers. They won't be any easier to find than back in the 1950s, when Detroit's independent automakers -- Packard and Studebaker, Nash and Hudson -- hastily married up in an effort to fend off the market power of General Motors Corp. and Ford Motor Co.
They failed. Today's thinking atop the automakers: Do almost anything to avoid bankruptcy, dismembering operations, invalidating decades of promises to employees and retirees, gutting a 70-year relationship with the United Auto Workers and staining the legacies of men named Ford Jr. and Mulally, Wagoner and Nardelli.
The details of a would-be "merger" between GM and Chrysler LLC or whoever else, or the fact that GM also talked to Ford, are far less important than confirmation that Chrysler's owners want out and that GM is desperately looking for a Plan B because it is running out of cash and time, which these days are one and the same thing.
How else to read GM's feeble attempt to knock down reports of tie-up talks with Chrysler and Ford? Or the implication that increasingly dire circumstances could force it to seek a "bailout" from the feds? Or Barack Obama's call for speeding low-cost loans to Detroit's automakers? Or the fact that GM is asking two Detroit pension funds to buy its Renaissance Center headquarters and then lease it back -- all so the General can pocket somewhere between $250 million and $500 million?
All options are options. You know things are serious, that GM's cash burn is accelerating and its options are limited, when a presidential nominee ups the bailout ante Monday and GM's CFO last week personally makes an investment pitch to pension reps for Detroit's cops, firefighters and city employees.
Another reality: Chrysler's owner, Cerberus Capital Management LP, wants to make a deal -- with anyone -- that will free it from the black hole that is a Detroit-based automaker. Lest there be any doubt, the private equity shop would gladly sacrifice Chrysler, its employees and retirees to GM's corporate ax if it can extricate itself from an industry it never fully understood.
Using the word "merger" to describe a combination of GM and Chrysler is verbal dishonesty of the worst kind. Whole swaths of Chrysler engineering, manufacturing and product development would be collapsed into GM; redundant support staffs would be trimmed; more plants would be closed and more jobs cut; Chrysler communities would be devastated.
And GM would eliminate a competitor in a "neutron bomb" kind of deal that eliminates jobs and the people in them but leaves valued hard assets and, presumably, Chrysler's corporate cash hoard intact. Which is the point.
Chrysler wouldn't be merging with GM so much as be submitted for its own execution. In exchange, Cerberus would assume total control of GM's GMAC finance arm, a business the financial engineers at Cerberus better understand and assume will return someday to normalcy and profitability.
The Big Lie in all this is how disingenuous Cerberus has been since the get-go: Cerberus's commitment to Chrysler, reiterated repeatedly by its hired hands and founder Stephen Feinberg, apparently lasts only as long as they say it does -- that is, long enough for Cerberus to cut its losses and for CEO Bob Nardelli and his top boys in Auburn Hills to reap their change-in-control payouts.
GM needs more brands, more plants and more dealers like it needs another credit crunch. Would the incremental volume of, say, merging Dodge Ram pickups with Chevy Silverados or combining the Chrysler minivan platform with GM's crossovers -- a multi-year undertaking -- deliver revenue worth waiting for? And would it come too late?
GM's directors aren't keen to embrace a Chrysler deal with Cerberus because they realize the remedy for what ails GM won't come from swallowing a competitor. It'll come from buying enough time to survive the imminent shakeout because -- and I wish I could say otherwise -- one of Detroit's Big Three may not.
Daniel Howes' column runs Tuesdays, Thursdays and Fridays. He can be reached at (313) 222-2106 or dchowes@detnews.com.
Friday, October 17, 2008
Other Chrysler Suitors... as if GM wasn't bad enough!
GM not only Chrysler suitor
Renault-Nissan, Fiat, Tata have been in contact; Cerberus says it's open to making a deal
Christine Tierney and David Shepardson / The Detroit News
Cerberus Capital Management LP began entertaining offers for Chrysler less than a year after acquiring the smallest and most vulnerable of Detroit's automakers.
In recent months, as the industry's outlook has worsened, Cerberus officials have discussed deals involving Chrysler LLC with General Motors Corp. and with the Renault-Nissan alliance, according to sources familiar with the negotiations. They also have had contacts with Fiat SpA of Italy and India's Tata Motors, the sources said.
After news of the GM-Cerberus talks broke Friday, Chrysler Chairman and CEO Bob Nardelli confirmed to employees Monday that the company was talking to potential partners.
"I can tell you that we have approached and have been approached by third parties who are interested in exploring future possibilities with Chrysler," he said in a note to employees.
Sources close to the negotiations say most of the discussions have been on hold since the recent turmoil in the financial markets.
Compared with the merger frenzy of the late 1990s, the tone of the talks is more cautious and guarded, the sources said. But some of them said Cerberus seemed eager to conclude a deal.
Delphi Corp. Chairman Robert S. Miller told The Detroit News on Monday that the talks between carmakers reflected the "serious financial pressures the industry is facing."
With U.S. auto sales tumbling this year to their lowest level in more than 15 years, and Detroit's automakers all losing money, Miller said there was mounting "pressure toward consolidation, just like we saw in the steel industry or the airline business."
Now privately owned, Chrysler does not publish its financial results. But the automaker has suffered the sharpest sales drop of any major player in the U.S. market. Its sales have fallen 25 percent so far this year, twice the rate of the overall market's decline.
Most of the discussions involving Chrysler arose out of its product-sharing negotiations with other automakers, such as Nissan Motor Co. and Volkswagen AG.
But the talks with Nissan expanded beyond vehicle projects in February, when Nissan, Chrysler and Cerberus officials met in Japan to discuss the possibility of a deeper relationship. Cerberus executives have been leading the negotiations with Renault-Nissan since the late spring.
Cerberus, Renault, Nissan and Fiat declined to comment.
But Carlos Ghosn, CEO of Renault SA and Nissan, has sought for a long time to add a North American partner to the French-Japanese alliance.
Sources familiar with the talks say Ghosn is monitoring the discussions dispassionately, while Nissan Executive Vice President Carlos Tavares is pushing for a deal. Ghosn's No. 2 at Renault, Patrick Pelata, is said to be cool to the idea and opposed to assuming the risks of an equity stake. Renault is investing more than $1 billion in Russia's AvtoVAZ.
The sources said "multiple scenarios" have been discussed. Estimates of savings resulting from any combination of the carmakers' automotive operations are "certainly encouraging," though not on the scale of the benefits that would have been generated by the Renault-Nissan-GM deal proposed two years ago, one of the sources said.
At the Paris Car Show earlier this month, Ghosn said the recent shocks to the markets and banking system had made merger and acquisition activity less likely, not more. "I think that initiatives, in terms of alliances, are frozen for a very simple reason: Everyone is scared of credit crunch and cash problems," he told reporters.
While GM's management opposed a link-up with Renault-Nissan in 2006, Chairman Rick Wagoner and President Fritz Henderson are interested in exploring a deal with Chrysler, said industry sources. The discussions, which began about a month ago, have been described as preliminary.
However, members of GM's board are questioning the logic of combining two struggling automakers, said a source familiar with the board discussions.
Industry analysts say the shift in the thinking of top GM executives reflects profound changes in the industry that have darkened the challenging prospects for Detroit's automakers.
"For the U.S. automakers, already wounded by dramatic U.S. sales declines, falling market share, eroding mix, rising commodity and regulatory costs, and weakening balance sheets, the latest blows to global markets have all the appearances of being fatal," Deutsche Bank analyst Rod Lache wrote in a report issued Monday.
"At this point, we do not believe that U.S. automakers have the internal means to avert a liquidity crisis. They simply cannot reduce costs or capital spending sufficiently, without causing additional impairment to their businesses," he said. "Media reports over this weekend indicating that GM had initiated merger talks with Ford (Motor Co.) and that it is now in discussions with Chrysler reinforce our belief that U.S. automakers have run out of internal options. Therefore, they have begun to seek external sources of savings and liquidity."
The deterioration in the U.S. auto industry began shortly after Cerberus acquired Chrysler from Daimler AG in August 2007 for $7.2 billion.
"I don't think when they put this deal together that they had any inkling what this industry was shaping up to be," said Joe Phillippi, president of AutoTrends Consulting Inc. in Short Hills, N.J. "I think they were totally blindsided by the fall in the market."
With a preponderance of large vehicles in its lineup, Chrysler was badly hurt by the surge in fuel prices at the start of the year. The credit squeeze compounded its problems, Phillippi said.
Cerberus owns many manufacturing firms. But the New York-based private equity firm was unlikely to be a long-term investor in Chrysler, Phillippi said. Its founder "Stephen Feinberg is a financier."
One person briefed on the talks said Cerberus expected to retain a stake in Chrysler in the event of a sale. The firm has other automotive holdings, including the parts supplier Tower Automotive, and it owns 51 percent of GMAC Financial Services.
From the outset, Chrysler has been in talks with many other automakers, including Russian and Chinese firms, about capacity- and platform-sharing projects. Its executives have met counterparts at many other carmakers, including Tata and Fiat, after negotiating deals and transactions.
But Nardelli's comments mark the first official confirmation that Cerberus was discussing potentially more far-reaching deals for Chrysler.
You can reach Christine Tierney at ctierney@detnews.com.
Renault-Nissan, Fiat, Tata have been in contact; Cerberus says it's open to making a deal
Christine Tierney and David Shepardson / The Detroit News
Cerberus Capital Management LP began entertaining offers for Chrysler less than a year after acquiring the smallest and most vulnerable of Detroit's automakers.
In recent months, as the industry's outlook has worsened, Cerberus officials have discussed deals involving Chrysler LLC with General Motors Corp. and with the Renault-Nissan alliance, according to sources familiar with the negotiations. They also have had contacts with Fiat SpA of Italy and India's Tata Motors, the sources said.
After news of the GM-Cerberus talks broke Friday, Chrysler Chairman and CEO Bob Nardelli confirmed to employees Monday that the company was talking to potential partners.
"I can tell you that we have approached and have been approached by third parties who are interested in exploring future possibilities with Chrysler," he said in a note to employees.
Sources close to the negotiations say most of the discussions have been on hold since the recent turmoil in the financial markets.
Compared with the merger frenzy of the late 1990s, the tone of the talks is more cautious and guarded, the sources said. But some of them said Cerberus seemed eager to conclude a deal.
Delphi Corp. Chairman Robert S. Miller told The Detroit News on Monday that the talks between carmakers reflected the "serious financial pressures the industry is facing."
With U.S. auto sales tumbling this year to their lowest level in more than 15 years, and Detroit's automakers all losing money, Miller said there was mounting "pressure toward consolidation, just like we saw in the steel industry or the airline business."
Now privately owned, Chrysler does not publish its financial results. But the automaker has suffered the sharpest sales drop of any major player in the U.S. market. Its sales have fallen 25 percent so far this year, twice the rate of the overall market's decline.
Most of the discussions involving Chrysler arose out of its product-sharing negotiations with other automakers, such as Nissan Motor Co. and Volkswagen AG.
But the talks with Nissan expanded beyond vehicle projects in February, when Nissan, Chrysler and Cerberus officials met in Japan to discuss the possibility of a deeper relationship. Cerberus executives have been leading the negotiations with Renault-Nissan since the late spring.
Cerberus, Renault, Nissan and Fiat declined to comment.
But Carlos Ghosn, CEO of Renault SA and Nissan, has sought for a long time to add a North American partner to the French-Japanese alliance.
Sources familiar with the talks say Ghosn is monitoring the discussions dispassionately, while Nissan Executive Vice President Carlos Tavares is pushing for a deal. Ghosn's No. 2 at Renault, Patrick Pelata, is said to be cool to the idea and opposed to assuming the risks of an equity stake. Renault is investing more than $1 billion in Russia's AvtoVAZ.
The sources said "multiple scenarios" have been discussed. Estimates of savings resulting from any combination of the carmakers' automotive operations are "certainly encouraging," though not on the scale of the benefits that would have been generated by the Renault-Nissan-GM deal proposed two years ago, one of the sources said.
At the Paris Car Show earlier this month, Ghosn said the recent shocks to the markets and banking system had made merger and acquisition activity less likely, not more. "I think that initiatives, in terms of alliances, are frozen for a very simple reason: Everyone is scared of credit crunch and cash problems," he told reporters.
While GM's management opposed a link-up with Renault-Nissan in 2006, Chairman Rick Wagoner and President Fritz Henderson are interested in exploring a deal with Chrysler, said industry sources. The discussions, which began about a month ago, have been described as preliminary.
However, members of GM's board are questioning the logic of combining two struggling automakers, said a source familiar with the board discussions.
Industry analysts say the shift in the thinking of top GM executives reflects profound changes in the industry that have darkened the challenging prospects for Detroit's automakers.
"For the U.S. automakers, already wounded by dramatic U.S. sales declines, falling market share, eroding mix, rising commodity and regulatory costs, and weakening balance sheets, the latest blows to global markets have all the appearances of being fatal," Deutsche Bank analyst Rod Lache wrote in a report issued Monday.
"At this point, we do not believe that U.S. automakers have the internal means to avert a liquidity crisis. They simply cannot reduce costs or capital spending sufficiently, without causing additional impairment to their businesses," he said. "Media reports over this weekend indicating that GM had initiated merger talks with Ford (Motor Co.) and that it is now in discussions with Chrysler reinforce our belief that U.S. automakers have run out of internal options. Therefore, they have begun to seek external sources of savings and liquidity."
The deterioration in the U.S. auto industry began shortly after Cerberus acquired Chrysler from Daimler AG in August 2007 for $7.2 billion.
"I don't think when they put this deal together that they had any inkling what this industry was shaping up to be," said Joe Phillippi, president of AutoTrends Consulting Inc. in Short Hills, N.J. "I think they were totally blindsided by the fall in the market."
With a preponderance of large vehicles in its lineup, Chrysler was badly hurt by the surge in fuel prices at the start of the year. The credit squeeze compounded its problems, Phillippi said.
Cerberus owns many manufacturing firms. But the New York-based private equity firm was unlikely to be a long-term investor in Chrysler, Phillippi said. Its founder "Stephen Feinberg is a financier."
One person briefed on the talks said Cerberus expected to retain a stake in Chrysler in the event of a sale. The firm has other automotive holdings, including the parts supplier Tower Automotive, and it owns 51 percent of GMAC Financial Services.
From the outset, Chrysler has been in talks with many other automakers, including Russian and Chinese firms, about capacity- and platform-sharing projects. Its executives have met counterparts at many other carmakers, including Tata and Fiat, after negotiating deals and transactions.
But Nardelli's comments mark the first official confirmation that Cerberus was discussing potentially more far-reaching deals for Chrysler.
You can reach Christine Tierney at ctierney@detnews.com.
GM Could Use Chrysler's Cash Reserves
GM could use Chrysler's cash
Money key reason for merger discussions
Robert Snell / The Detroit News
General Motors Corp. doesn't need Chrysler LLC's brands, workers or plants, but if the companies merged, the Auburn Hills automaker's $11.7 billion in cash could help GM survive the worst sales market in 15 years, analysts said Monday.
The cash, which Chrysler said it had on June 30, and an estimated cost savings of about $6 billion through combining automotive operations, is a key reason why GM and Chrysler-parent Cerberus Capital Management LP are discussing a possible merger that otherwise makes little sense for either company, analysts said.
Barclays Capital analyst Brian Johnson said GM needs $10.3 billion in fresh cash through next year, at which point the automaker could see significant savings from a new union contract and a possible sales boost from fuel-efficient models such as the Chevrolet Cruze and Volt, an extended-range electric car. A deal with Cerberus could quench GM's cash quest, said auto analyst Erich Merkle of Crowe Horwath.
"It's the smell of money," attracting GM's interest in any deal, Merkle said. "GM needs cash to live to fight another day."
Officials at both GM and Cerberus have declined to comment about their discussions.
Meanwhile, GM's shares rebounded Monday, jumping $1.62, or more than 33 percent, to close at $6.51 following news of steps being taken by major governments to support the global banking system.
But merger talks -- which have stalled amid the Wall Street turmoil -- did not improve the automaker's credit rating or convince analysts that GM would benefit from a potential Cerberus deal.
Standard & Poor's didn't budge Monday from last week's decision to place GM's credit rating on CreditWatch with negative implications, which means the rating could fall further into junk status.
Any merger would not solve GM's immediate challenge raising cash, said Robert Schulz, S&P's credit analyst.
"We would be skeptical that a GM-Chrysler transaction could easily address our primary concern by resulting in a substantial increase of current liquidity for the parties involved," Schulz said.
GM is burning through at least $1 billion a month. 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.
Those cost-cutting moves intensified Monday when GM announced it was closing plants in Grand Rapids and Janesville, Wis. The moves affect about 2,500 hourly workers at plants that produce sport-utility vehicles and parts for pickups and SUVs.
The Grand Rapids facility will close by the end of 2009 while the Janesville factory will close ahead of schedule in December. GM officials had said in June the Janesville plant, along with three others, would close in 2010 as demand slumped for pickups and SUVs.
It was unclear exactly how much money GM will save by idling those plants.
S&P believes GM has enough cash and available credit for the rest of 2008 but the deteriorating industry -- GM's sales are down 18.1 percent this year -- will be challenging next year
Meanwhile, analysts remained skeptical about any GM/Chrysler deal three days after merger talks first surfaced.
Any short-term gain from acquiring Chrysler could come at the expense of long-term health, said Deutsche Bank analyst Rod Lache.
"The fact that there is so much product/geographic overlap between the companies is precisely the reason for the large ... savings potential in a GM/Chrysler combination," Lache wrote in a research paper Monday.
A merger would not have a significant benefit or address shared problems such as too many dealers, damaged brands, falling sales, overcapacity and inability to raise cash, said Aaron Bragman, an auto analyst with Global Insight.
A combined company would have larger market share and be in a stronger bargaining position with the United Auto Workers. Another round of talks is likely considering GM's struggles, he said.
"The negatives far outweigh the positives for any potential merger of GM and Chrysler," Bragman wrote in a research paper published Monday.
"The details of what a combined GM/Chrysler would look like point to a company that would immediately be in an even worse position than either of these companies are alone."
The real winner might be Cerberus if it swaps Chrysler for the 49 percent share of GMAC Financial Services owned by GM, Bragman said.
Cerberus, a private equity fund, acquired 51 percent of GMAC in a $14.1 billion deal in 2006.
The recently passed $700 billion Wall Street bailout bill is designed to buy up bad securitized mortgages and lobbyists are pushing to extend the bailout to include bad auto loans.
"That one-two punch would go a long way towards restoring the profitability of GMAC, making it an attractive business to have," Bragman said.
Money key reason for merger discussions
Robert Snell / The Detroit News
General Motors Corp. doesn't need Chrysler LLC's brands, workers or plants, but if the companies merged, the Auburn Hills automaker's $11.7 billion in cash could help GM survive the worst sales market in 15 years, analysts said Monday.
The cash, which Chrysler said it had on June 30, and an estimated cost savings of about $6 billion through combining automotive operations, is a key reason why GM and Chrysler-parent Cerberus Capital Management LP are discussing a possible merger that otherwise makes little sense for either company, analysts said.
Barclays Capital analyst Brian Johnson said GM needs $10.3 billion in fresh cash through next year, at which point the automaker could see significant savings from a new union contract and a possible sales boost from fuel-efficient models such as the Chevrolet Cruze and Volt, an extended-range electric car. A deal with Cerberus could quench GM's cash quest, said auto analyst Erich Merkle of Crowe Horwath.
"It's the smell of money," attracting GM's interest in any deal, Merkle said. "GM needs cash to live to fight another day."
Officials at both GM and Cerberus have declined to comment about their discussions.
Meanwhile, GM's shares rebounded Monday, jumping $1.62, or more than 33 percent, to close at $6.51 following news of steps being taken by major governments to support the global banking system.
But merger talks -- which have stalled amid the Wall Street turmoil -- did not improve the automaker's credit rating or convince analysts that GM would benefit from a potential Cerberus deal.
Standard & Poor's didn't budge Monday from last week's decision to place GM's credit rating on CreditWatch with negative implications, which means the rating could fall further into junk status.
Any merger would not solve GM's immediate challenge raising cash, said Robert Schulz, S&P's credit analyst.
"We would be skeptical that a GM-Chrysler transaction could easily address our primary concern by resulting in a substantial increase of current liquidity for the parties involved," Schulz said.
GM is burning through at least $1 billion a month. 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.
Those cost-cutting moves intensified Monday when GM announced it was closing plants in Grand Rapids and Janesville, Wis. The moves affect about 2,500 hourly workers at plants that produce sport-utility vehicles and parts for pickups and SUVs.
The Grand Rapids facility will close by the end of 2009 while the Janesville factory will close ahead of schedule in December. GM officials had said in June the Janesville plant, along with three others, would close in 2010 as demand slumped for pickups and SUVs.
It was unclear exactly how much money GM will save by idling those plants.
S&P believes GM has enough cash and available credit for the rest of 2008 but the deteriorating industry -- GM's sales are down 18.1 percent this year -- will be challenging next year
Meanwhile, analysts remained skeptical about any GM/Chrysler deal three days after merger talks first surfaced.
Any short-term gain from acquiring Chrysler could come at the expense of long-term health, said Deutsche Bank analyst Rod Lache.
"The fact that there is so much product/geographic overlap between the companies is precisely the reason for the large ... savings potential in a GM/Chrysler combination," Lache wrote in a research paper Monday.
A merger would not have a significant benefit or address shared problems such as too many dealers, damaged brands, falling sales, overcapacity and inability to raise cash, said Aaron Bragman, an auto analyst with Global Insight.
A combined company would have larger market share and be in a stronger bargaining position with the United Auto Workers. Another round of talks is likely considering GM's struggles, he said.
"The negatives far outweigh the positives for any potential merger of GM and Chrysler," Bragman wrote in a research paper published Monday.
"The details of what a combined GM/Chrysler would look like point to a company that would immediately be in an even worse position than either of these companies are alone."
The real winner might be Cerberus if it swaps Chrysler for the 49 percent share of GMAC Financial Services owned by GM, Bragman said.
Cerberus, a private equity fund, acquired 51 percent of GMAC in a $14.1 billion deal in 2006.
The recently passed $700 billion Wall Street bailout bill is designed to buy up bad securitized mortgages and lobbyists are pushing to extend the bailout to include bad auto loans.
"That one-two punch would go a long way towards restoring the profitability of GMAC, making it an attractive business to have," Bragman said.
GM Absorb Chrysler...
One plan: GM may absorb Chrysler
Possible scenario would eliminate rival, reduce excess capacity; pact similar to AMC purchase.
David Shepardson, Christine Tierney and Alisa Priddle / The Detroit News
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.
Such a deal would differ from the 1998 acquisition of Chrysler by Germany's Daimler-Benz AG, which left the U.S. carmaker operating intact as a separate division. Instead, Chrysler would be completely absorbed into GM and melded into its car making and other operations over time.
"That would be the likely scenario, if such a thing were to happen," said Aaron Bragman, an analyst at Global Insight.
Besides the Jeep brand and Chrysler's minivans, the company has few assets of value to its bigger rival, he said.
"For GM, the only reason to absorb Chrysler would be to eliminate a competitor," he said.
Many industry experts believe GM's interest in Chrysler, both now and in 2007, when DaimlerChrysler AG put the American unit up for sale, reflected its goal to reduce the excess capacity in the U.S. auto industry that has hurt all of Detroit's carmakers.
"The others (automakers) will be delighted to have Chrysler just die and take 1.5 million units out of the industry, which is about what the excess is," said Gerald Meyers, former chairman of AMC and now a professor at the University of Michigan.
Such a deal would surely worsen Michigan's economic woes, eliminating thousands more auto jobs in Metro Detroit, canceling contracts with suppliers and prompting more plant closures.
The source familiar with the negotiations told The Detroit News that GM could cut costs by eliminating much of Chrysler's staff and gradually shifting production of Chrysler vehicles to use more GM components.
Lincoln Merrihew, an analyst with TNS Automotive in Boston, said he didn't see the Dodge or Chrysler brands surviving if such a deal were concluded. "In the situation the Big Three face, you're looking for hard-core, quick economies of scale," he said.
At Chrysler's Auburn Hills headquarters, morale is bleak as employees fear huge job losses in any GM deal, while the top bosses installed by Cerberus are expected to leave with fortunes.
GM, struggling with huge losses and a liquidity squeeze, might use Chrysler's cash -- $11.7 billion at the end of June -- to close Chrysler dealers and some of its businesses, as well as shore up GM's finances, analysts say.
Sources close to the negotiations say Chrysler might survive -- or at least fare better -- in a three-way deal with the Renault-Nissan alliance.
But it is unclear whether the French-Japanese partnership still is interested in Chrysler.
Renault SA is in debt, and executives are studying whether Nissan Motor Co. has enough cash to comfortably afford a deal in this difficult economic environment.
Carlos Ghosn, the CEO of Renault and Nissan, is said to have been more inclined to do a deal with Cerberus a few months ago.
At GM, many top executives support acquiring Chrysler, but only in a deal like Chrysler's acquisition of AMC from Renault.
Renault agreed in 1987 to sell its 46.1 percent stake in AMC, and AMC's board sold the remainder to Chrysler in a $1.2 billion deal, the biggest merger in the U.S. auto industry at the time. Chrysler ended all of AMC's car lines, keeping only the Jeep brand.
In their discussions, GM and Cerberus also have looked at their shared ownership of GMAC Financial Services since 2006, when GM sold 51 percent to Cerberus. Cerberus wants to acquire the rest, but GM wants GMAC focused on its auto sales business.
This week, after GMAC's announcement that it would consider auto loans only for customers with high credit ratings many wondered whether Cerberus was putting pressure on GM.
At Cerberus, officials deny any ulterior motive. GMAC spokeswoman Gina Proia said the decision to increase credit requirements was a result "of the current market environment that has reduced access to funds and increased the cost of funds."
Robert Snell contributed. You can reach Christine Tierney at ctierney@detnews.com.
Possible scenario would eliminate rival, reduce excess capacity; pact similar to AMC purchase.
David Shepardson, Christine Tierney and Alisa Priddle / The Detroit News
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.
Such a deal would differ from the 1998 acquisition of Chrysler by Germany's Daimler-Benz AG, which left the U.S. carmaker operating intact as a separate division. Instead, Chrysler would be completely absorbed into GM and melded into its car making and other operations over time.
"That would be the likely scenario, if such a thing were to happen," said Aaron Bragman, an analyst at Global Insight.
Besides the Jeep brand and Chrysler's minivans, the company has few assets of value to its bigger rival, he said.
"For GM, the only reason to absorb Chrysler would be to eliminate a competitor," he said.
Many industry experts believe GM's interest in Chrysler, both now and in 2007, when DaimlerChrysler AG put the American unit up for sale, reflected its goal to reduce the excess capacity in the U.S. auto industry that has hurt all of Detroit's carmakers.
"The others (automakers) will be delighted to have Chrysler just die and take 1.5 million units out of the industry, which is about what the excess is," said Gerald Meyers, former chairman of AMC and now a professor at the University of Michigan.
Such a deal would surely worsen Michigan's economic woes, eliminating thousands more auto jobs in Metro Detroit, canceling contracts with suppliers and prompting more plant closures.
The source familiar with the negotiations told The Detroit News that GM could cut costs by eliminating much of Chrysler's staff and gradually shifting production of Chrysler vehicles to use more GM components.
Lincoln Merrihew, an analyst with TNS Automotive in Boston, said he didn't see the Dodge or Chrysler brands surviving if such a deal were concluded. "In the situation the Big Three face, you're looking for hard-core, quick economies of scale," he said.
At Chrysler's Auburn Hills headquarters, morale is bleak as employees fear huge job losses in any GM deal, while the top bosses installed by Cerberus are expected to leave with fortunes.
GM, struggling with huge losses and a liquidity squeeze, might use Chrysler's cash -- $11.7 billion at the end of June -- to close Chrysler dealers and some of its businesses, as well as shore up GM's finances, analysts say.
Sources close to the negotiations say Chrysler might survive -- or at least fare better -- in a three-way deal with the Renault-Nissan alliance.
But it is unclear whether the French-Japanese partnership still is interested in Chrysler.
Renault SA is in debt, and executives are studying whether Nissan Motor Co. has enough cash to comfortably afford a deal in this difficult economic environment.
Carlos Ghosn, the CEO of Renault and Nissan, is said to have been more inclined to do a deal with Cerberus a few months ago.
At GM, many top executives support acquiring Chrysler, but only in a deal like Chrysler's acquisition of AMC from Renault.
Renault agreed in 1987 to sell its 46.1 percent stake in AMC, and AMC's board sold the remainder to Chrysler in a $1.2 billion deal, the biggest merger in the U.S. auto industry at the time. Chrysler ended all of AMC's car lines, keeping only the Jeep brand.
In their discussions, GM and Cerberus also have looked at their shared ownership of GMAC Financial Services since 2006, when GM sold 51 percent to Cerberus. Cerberus wants to acquire the rest, but GM wants GMAC focused on its auto sales business.
This week, after GMAC's announcement that it would consider auto loans only for customers with high credit ratings many wondered whether Cerberus was putting pressure on GM.
At Cerberus, officials deny any ulterior motive. GMAC spokeswoman Gina Proia said the decision to increase credit requirements was a result "of the current market environment that has reduced access to funds and increased the cost of funds."
Robert Snell contributed. You can reach Christine Tierney at ctierney@detnews.com.
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