http://www.nytimes.com/2008/10/11/business/11auto.html?_r=1&hp&oref=slogin
Quote:
G.M. and Chrysler Explore Merger
By BILL VLASIC
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.
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 has seen its stock fall 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 Chrysler began more than a month ago, said people familiar with the discussions, and the companies have held several meetings with their most senior executives. Given that both of them are struggling, they 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, Chrysler 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.
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. “As a policy, we do not confirm or comment publicly on those private discussions, which in many cases do not lead anywhere.”
There was no immediate comment from Chrysler, which is owned by the private equity firm Cerberus Capital Management.
While both G.M. and Chrysler have been losing billions of dollars in a depressed United States auto market, the combined firms could find synergies in manufacturing operations and research and development of new technologies.
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. The 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.
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.
G.M. lost $15.5 billion in the second quarter, and it is rapidly burning through cash to fund its operations. On Friday, the automaker reiterated that it was not considering filing for bankruptcy protection, despite a 17.8 percent drop in United States sales this year and a balance sheet that is bleeding red ink.
Chrysler, for its part has performed worse than any other major automaker this year in its home market. People close to the discussions said that if the prospective deal did not happen, Cerberus would probably look for another suitor — possibly an alliance with Nissan Motor of Japan and the French automaker Renault.
Quote:
G.M. and Chrysler Explore Merger
By BILL VLASIC
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.
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 has seen its stock fall 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 Chrysler began more than a month ago, said people familiar with the discussions, and the companies have held several meetings with their most senior executives. Given that both of them are struggling, they 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, Chrysler 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.
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. “As a policy, we do not confirm or comment publicly on those private discussions, which in many cases do not lead anywhere.”
There was no immediate comment from Chrysler, which is owned by the private equity firm Cerberus Capital Management.
While both G.M. and Chrysler have been losing billions of dollars in a depressed United States auto market, the combined firms could find synergies in manufacturing operations and research and development of new technologies.
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. The 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.
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.
G.M. lost $15.5 billion in the second quarter, and it is rapidly burning through cash to fund its operations. On Friday, the automaker reiterated that it was not considering filing for bankruptcy protection, despite a 17.8 percent drop in United States sales this year and a balance sheet that is bleeding red ink.
Chrysler, for its part has performed worse than any other major automaker this year in its home market. People close to the discussions said that if the prospective deal did not happen, Cerberus would probably look for another suitor — possibly an alliance with Nissan Motor of Japan and the French automaker Renault.
