October 12, 2008 in Nation/World

GM, Chrysler hold discussions on merger

By Sholnn Freeman Washington Post
 

Similar talks have been held

 Merger talk among the Detroit Big Three is not new. General Motors talked with DaimlerChrysler AG in 2007 about acquiring Chrysler before Cerberus bought its stake in a $7.4 billion deal. The talks fell through when GM decided it should concentrate on cost savings and efficiencies by globalizing its own operations.

 There also were reports Saturday that Chrysler was in talks with Nissan-Renault, and the New York Times reported that GM had approached Ford Motor Co. about a merger earlier in the year, but Ford wanted to stay independent.

Associated Press

WASHINGTON – General Motors and Chrysler, bruised by the severe industry downturn, have held preliminary discussions about combining operations, including a full-scale merger, according to people familiar with the talks. It was unclear over the weekend whether the discussions were progressing and what, if anything, would come as a result.

Spokesmen at GM and Cerberus Capital Management, the private-equity group that owns Chrysler, declined to comment. In a statement, Chrysler said that “the company is looking at a number of potential global partnerships as it explores growth opportunities around the world,” but added there was no further announcement to make.

An official at one of the companies with knowledge of the talks said the situation appears to be fluid as Cerberus pursues other potential buyers for Chrysler.

Both GM and Chrysler have been hit hard by the global credit crisis and pullback in consumer spending. Many consumers shopping for automobiles are having more difficulty getting auto loans. GM’s U.S. sales have dropped 17 percent so far this year, while Chrysler’s have slumped 25 percent.

GM’s share price last week plunged to its lowest level since 1950 on fears that it will not be able to weather the downturn.

Detroit’s automakers, including Ford, have been dogged by bankruptcy rumors all year. J.D. Power and Associates said last week that the global auto industry might experience an “outright collapse” in 2009.

The dash for industry pairings and the possibility that a dramatic step will be taken that will sweep aside Chrysler, an 83-year-old American icon, shows just how weak economic conditions could reorder the automotive landscape, analysts say.

A GM-Chrysler merger could also affect the future of GMAC Financial Services, the giant housing and auto financing division that GM partly spun off to Cerberus in 2006. Like other financial institutions, GMAC has been confronted with enormous difficulty in tapping the capital markets as other lending institutions pull back. That difficulty in turn restricts GMAC’s ability to lend money to automotive dealers, car buyers and homeowners. Cerberus owns 51 percent of GMAC.

Chrysler, the smallest of Detroit’s Big Three, has changed hands twice in the past decade. In 1998, the company shifted from a stand-alone U.S. public company by pairing up with Germany’s Daimler-Benz. In 2007, Cerberus purchased an 81 percent stake in Chrysler.

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