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BREAKING NEWS staff and news service reports
updated 13 minutes ago

General Motors has held discussions about acquiring Chrysler, The New York Times and Wall Street Journal reported late Friday.

The talks between GM and Cerberus Capital Management, which owns Chrysler, began more than a month ago, the Times reported on its Web site.

The Journal reported that the talks were "rendered inactive" because of the upheaval in financial markets but that people familiar with the developments said the talks could be revived quickly if markets stabilize.

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G.M. and Chrysler Explore Merger
October 10, 2008, 10:28 pm

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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, The New York Times’s Bill Vlasic and Andrew Ross Sorkin reported late Friday.

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 from more than $42 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 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 acquisition in 1998 by Daimler, but its share this year has dwindled to 11 percent.

How government and labor react to a potential merger of G.M. and Chrysler is unclear. There could be antitrust questions 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, according to people briefed on the talks.

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.

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DETROIT (Reuters) - Shares of General Motors Corp jumped almost 18 percent on Monday after reports the No. 1 U.S. automaker had been in merger talks in recent weeks with smaller rivals Ford Motor Co and Chrysler LLC.

Analysts were skeptical that GM could achieve substantial savings from a merger.

But a deal with Chrysler might allow the top U.S. automaker to boost its cash holdings, reassure consumers that it was not going out of business and give it bargaining power to seek new concessions from the United Auto Workers union, they said.

Shares of GM, which had traded near 60-year lows last week, jumped to $5.75 in pre-market trade on Monday, up from a close of $4.89 on Friday. The gains came amid a rebound in the broad market tied to steps by the U.S. government and others to stabilize the banking system.

GM and Cerberus Capital Management have had discussions about a deal that would combine the No. 1 and No. 3 U.S. automakers, people familiar with the talks said over the weekend.

Those talks hit a snag over the question of how to value Chrysler, the sources said. Cerberus bought an 80 percent stake in the automaker for about $7.4 billion from Daimler AG in 2007, but auto sales have dropped sharply since.

In addition, GM and Ford had earlier talks about a potential merger with the No. 2 U.S. automaker but those discussions broke off without nearing a deal, according to a person familiar with those talks.

JP Morgan analyst Himanshu Patel said the benefits for GM would be greater from a deal with Ford, but said there could also be some gains from a merger with Chrysler.

Cerberus had proposed swapping Chrysler's auto operations for the 49 percent in finance company GMAC still owned by GM. The private equity firm already owns 51 percent of GMAC after it bought the stake from the automaker in 2006.

Patel said GM's stake in GMAC could be worth $3 billion, while Chrysler's auto business "is arguably nearly worthless on a stand-alone basis."

If GM were paid $3 billion in a swap with Cerberus and GM got access to the estimated $10 billion remaining on Chrysler's books, it could mean a boost in liquidity, for GM.

GM has ruled out a bankruptcy filing but faces scrutiny from investors and creditors over its ability to ride out a downturn in auto sales that began in the United States and is now spilling over to Europe and Asia.

"If GM is deemed to be 'saving' Chrysler, GM's leverage with the UAW could rise considerably," Patel said.

The automaker could use that influence to press its major union for new concessions on retiree health care and lower wages for new hires, he said.

Calyon Securities analyst Mark Warnsman said the winners from any deal to combine GM and Chrysler could be suppliers rather than the merged auto companies.

"We are skeptical of major incremental savings resulting from a combination," Warnsman said.

GM might benefit from an acquisition of Chrysler if the deal helped to reassure U.S. consumers about the staying power of its brands.

"The greatest near-term risk to GM, in our view, is that consumers stop buying its products for lack of confidence in, among other things, the warranties behind the vehicles," he said. "By joining with Chrysler, GM could reinforce its market-leading position in the U.S., potentially reducing the risk of lost consumer confidence."

But Warnsman said a combined GM-Chrysler would also "help dissipate the cloud that presently hangs over even the healthiest North American suppliers."

Warnsman said Johnson Controls Inc and Gentex Corp could benefit from a merger of Chrysler and GM.

(Reporting by Kevin Krolicki; Editing by Maureen Bavdek, Dave Zimmerman)

Copyright 2008 Reuters

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Discussion Starter · #4 ·
DETROIT -- In the doomsday scenario raising anxiety around the Motor City, General Motors Corp. makes a deal for Chrysler LLC, keeps Jeep and the minivans, and vaporizes the rest of the company.

Tens of thousands of Chrysler's 66,409 employees lose their jobs as cash-desperate GM swiftly cuts redundant operations and sheds unprofitable models. Factories and dealerships are closed, and the lights go out at Chrysler's gleaming corporate headquarters campus in the northern suburb of Auburn Hills.

It's not something Andre Thibodeaux wants to think about. The general manager of Lelli's, an upscale steakhouse and Italian restaurant near Chrysler's 15-story tower, gets about half his lunch business from the automaker and related businesses.

The eatery, with roots in downtown Detroit and family owned for three generations, already has lost business as Chrysler and parts suppliers have downsized and people eat out less due to economic worries. The loss of Chrysler's corporate headquarters is almost unthinkable.

"I can't imagine moving the building or changing or selling or anything like that," said Thibodeaux. "Auburn Hills in general is built all around that building."

Although it may be unimaginable, industry analysts say GM would have no choice but to slash costs if it acquires struggling Chrysler from its current owner, New York private equity firm Cerberus Capital Management LP.

Both sides have been talking for months, but the pace recently has increased. Cerberus wants out of the auto business, and as the credit markets have dried up, GM, worried about running too low on cash before the U.S. auto market rebounds, wants Chrysler's currency stockpile.

A person familiar with the negotiations said Friday that the talks have advanced to the point where top executives of both companies have looked at a deal and asked for refinements. The person spoke on condition of anonymity because the talks are secret.

In August, Chrysler said it had accumulated $11.7 billion in cash and marketable securities as of June 30. That figure remains around $11 billion, the person said, despite Chrysler's U.S. sales being down 25 percent through September, the largest decline of any major automaker.

Detroit-based GM is burning up more than $1 billion per month, with several analysts predicting it will reach its minimum operating cash level of $14 billion sometime next year. GM's sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, although much of that comes from noncash tax accounting changes.

Chrysler's money pile would help solve GM's cash problem if credit remains unavailable.

Both automakers have had to deny bankruptcy rumors in recent weeks, saying people who won't buy cars from a company that looks like it could go out of business.

According to the person familiar with the negotiations, the deal being discussed thus far calls for Cerberus to hand over Chrysler in exchange for GM's 49 percent stake in GMAC Financial Services. GM sold a 51 percent stake in its finance arm to Cerberus in 2006.

Cerberus also would get an equity stake in GM, hoping to get a good return should GM recover when U.S. auto sales bounce back from a serious slump.

Other automakers, including the allied companies of Renault SA and Nissan Motor Co., also are in discussions about Chrysler, the person said. Simultaneously, Cerberus, which bought 80.1 percent of Chrysler from Daimler AG in a $7.4 billion deal last year, is negotiating to acquire Daimler's 19.9 percent stake.

GM and Cerberus are still a long way from a deal, according to the person, and GM's board reportedly is cool to the idea.

All that GM, Chrysler and Cerberus have said about the negotiations is that automakers meet all the time. Chrysler Chief Executive Bob Nardelli said Thursday the auto sales drop has created an environment that favors consolidation.

It's the uncertainty of consolidation that worries many in Michigan, which has lost more than 400,000 jobs since 2000. Its unemployment rate in September was 8.7 percent, the highest in the nation, as GM, Chrysler and Ford Motor Co. continued to make cuts.

"Mergers usually represent job loss," Gov. Jennifer Granholm said Friday on the Public Broadcasting Service's Nightly Business Report. "We are fearful that a merger would mean more job loss, and that is the last thing we need."

Among the fearful are Chrysler workers and its roughly 3,600 dealers, who already are under pressure from the company to merge with other dealers and scale back their ranks.

"If you end up going from the Detroit Three to the Detroit Two, you don't need as many dealers representing those nameplates," said Dale Early, owner of a Chrysler-Jeep dealer in the Houston suburb of Kingwood, Texas. "With the market the way it is today, you don't necessarily have a need for three major manufacturers," he said.

The upside of an acquisition, industry analysts say, is that it would almost certainly shrink the U.S. auto industry to where it needs to be so the survivors can thrive. Many analysts are predicting that the U.S. auto market will shrink to sales of about 13 million vehicles this year. That's a drop of about 3 million from 2007, and the decline is more than Toyota Motor Corp.'s U.S. sales last year.

GM would almost immediately make cuts to eliminate duplication, save costs and hoard cash, and that means something like the doomsday scenario would occur, said Jeremy Anwyl, CEO of the automotive Web site.

"At the end of the day you're looking at two companies having a much-reduced market share than the two independent companies," he said. "The only way to make that work is some sort of scenario where there's massive shutdowns and job losses."

But GM may see value in and keep other parts of Chrysler, which has several of the industry's most productive parts plants.

While the deal would likely cost jobs, David Cole, chairman of the Center for Automotive Research in Ann Arbor, said local economies and labor would still be better off than if one of the automakers were to fail.

"This would be good for the state because whatever happens in combining is going to be a lot less severe than an outright disaster," he said.

Chrysler veterans, though, have seen the movie before with the 1998 takeover by Daimler and the subsequent sale to Cerberus.

"A lot of the things that would come out of something like this, we've already had the anxiety related to it," Early said. "At some point I guess you refuse to feel like the sky is falling because you've already been through some of the dark days already."


AP Auto Writer Bree Fowler in New York and Associated Press Writer Corey Williams in Detroit contributed to this report.
Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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Discussion Starter · #7 ·
Nope all 30K will be Chrysler employees. I've been watching this close cause most all teh few jobs left in my area are job shops for Chrysler.

The way they put it on the news, GM buy them we loose 30K jobs, if Chrysler folds(very likely at current rate) we loose 66K just from them and another 160K jobs from the trickle down to other markets.

The said part is it's the beginning of the end of the big 3.. And possibly the whole American auto industry. Only time will tell.

But just trying to keep all informed with this here thread...
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