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.