There have been rumblings of this before, but news is that a merger between GM and Chrysler has become quite serious in the past week and is taking on a highly likely reality and FAST.
GM, Chrysler talk merger
GM, Chrysler talk merger | The Detroit News | detnews.com
General Motors Corp. is in talks with Cerberus Capital Management LP about a possible merger with Chrysler LLC, a person familiar with the matter said late Friday. GM and Cerberus, which owns 80.1 percent of Chrysler, have been in preliminary talks for more than a month.
"A lot of things are being discussed in the industry right now," the person said.
The talks come amid great turmoil in the auto industry, particularly for Detroit's automakers, which are being further battered by the global financial crisis after coping with slumping sales amid a weak economy and high gas prices that drove buyers away from their profitable pickups and SUVs.
The Wall Street Journal reported late Friday that the GM-Chrysler discussions are on hold because of the financial crisis, but could be renewed once markets stabilize. GM declined to confirm the talks or their status.
"Without referencing this specific rumor, as we've often said, GM officials routinely discuss issues of mutual interest with other automakers," spokesman Tony Cervone said late Friday. "As a policy, we do not confirm or comment publicly on those private discussions, which in many cases do not lead anywhere." Cerberus spokesman Peter Duda and Chrysler officials did not return calls seeking comment.
Cerberus, the private equity fund, had proposed swapping Chrysler for the 49 percent of GMAC that GM still owns. Cerberus purchased 51 percent of GM's lending arm in a $14.1 billion deal in 2006. The merger talks were first reported by The New York Times.
David Healy, an auto analyst at Burnman Investment Research, said auto mergers have a bad track record. "You would think Chrysler would have learned its lesson," Healy said. "They have primarily destroyed shareholder value."
Healy said GM and Chrysler could benefit from collaborating on vehicle development programs, but not a top-down merger. They also could benefit from reducing capacity and sharing plants and engineering resources, he said.
Chrysler is actively pursuing partnerships with other automakers. Chrysler has agreed to buy a small car from Nissan Motor Co., while Chrysler is building a truck for Nissan and the two companies have held talks about further collaboration.
Automakers have explored consolidation to reduce development costs in a highly competitive auto industry. On Sept. 24, Daimler AG said it was in talks with Cerberus about selling its 19.9 percent stake in Chrysler.
Daimler sold 80.1 percent of its stake in Chrysler to Cerberus in August 2007 in a $7.2 billion deal.
Reports of possible merger talks between GM and Chrysler came as GM and Ford Motor Co. prepped for more production and job cuts and possible plant closures Friday as a way to combat the panic on Wall Street that has sent their stock shares plummeting to record lows and raised questions about whether GM would file for bankruptcy.
From what I have read in other reports, Cerberus who also owns about half of GMAC wants to trade GM's roughly 50% equity in GMAC for all of Chrysler. This makes some sense as Cerberus is an investment and banking company that is likely more comfortable running a financial company. GM would do well to get rid of GMAC, which poses a lot of risk right now.
If this goes forward there are a lot of complications. Obviously they compete head to head on trucks and many different cars. You have the Ram vs. Silverado/Sierra, Camaro vs. Challenger, Dakota vs. Colorado and all the mid size rental grade vehicles. There is just a lot of overlap and duplication that both companies have been working on getting rid of already. Then there is Jeep which is a worthwhile brand, but it almost clashes with Hummer which GM is trying to sell anyway.
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