GM would need cash to acquire Chrysler

[steinravnik]

GM would need cash to acquire Chrysler

DETROIT (AP) -- For General Motors Corp. to acquire Chrysler LLC and all of its warts, GM would have to get desperately needed cash. Lots of it, according to industry analysts.

With both automakers struggling to survive amid slumping sales, a slowing global economy and an unprecedented credit crunch, it's unclear whether Chrysler's majority owner, Cerberus Capital Management LP, would be willing to pay up, or whether the federal government might even get involved to save one or both struggling automakers.

"There's got to be more in it for GM than just Chrysler," said Erich Merkle, an auto industry analyst with Crowe Horwath LLP, an accounting and consulting firm. "If you put two auto companies together, both that are losing money, both that are losing market share, you've just got an auto company that's losing market share faster and losing more money."

GM and Cerberus, which owns 80.1 percent of Chrysler, have held preliminary talks about an acquisition or other combination of the two automakers, according to a person familiar with the discussions who did not want to be identified because the talks have not been made public.

A tie-up between the automotive giants would be historic for the industry and solidify GM's position as the global sales leader, which it has been in danger of losing to Toyota Motor Corp. GM and Toyota finished 2007 essentially even in vehicles sold worldwide.

GM and Chrysler already have a joint venture with BMW AG making a hybrid gas-electric powertrain. While melding the companies could save money by combining management, engineering, manufacturing and administrative staffs, analysts say consolidation would bring more costs, and the rewards probably wouldn't come for several years.

That might be too late for both automakers.

Auburn Hills-based Chrysler, a privately held company, doesn't have to open its books, but it lost at least $510 million in the first quarter and $1.6 billion last year. Its sales are down 25 percent so far this year, the worst drop of any major automaker.

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

All of this comes as U.S. sales have slowed to their lowest point in 15 years, making bankruptcy possible for all of the cash-strapped Detroit Three if things don't turn around soon enough.

Not exactly the prime scenario for a GM-Chrysler combination, said analyst Kevin Tynan of New York-based Argus Research Corp.

"Even though you're getting the rationalization of folding the two businesses together, it doesn't make sense at this time," he said. "There's got to be some sort of outside motivation for them to do that sort of deal, especially in this market."

That outside motive, analysts speculated, could be the federal government, which would inherit massive pension liabilities if either company went under.

In exchange for taking on Chrysler, analysts envisioned that GM could be given access to low-rate emergency borrowing from the Federal Reserve's discount window, used in normal times by banks.

http://biz.yahoo.com/ap/081011/gm_ch...ger_talks.html

[mgescuro]

I just don't understand the coupling of these 2 companies.
Other than giving GM a boost in "market share," there really are ZERO synergies to be had here.
That alone SHOULD preclude this merger/acquisition.

[Buick Riviera]

It has nothing to do with gm merging with chrysler, because gm is not going to merging with chrysler, they have enought as it is , they have enought resores as it is, gm is trying too sell off these rest of GMAC and that's it. Just like there trying to find a buyer for hummmer.

[iamwin]

Isn't this the same nonsense we heard back in the Kerkorian days a couple years ago?

[Buick Riviera]

Originally Posted by iamwin

Isn't this the same nonsense we heard back in the Kerkorian days a couple years ago?

I belive so!

[johnstarnes]

With the new V8 engine killed, Northstar dying off, GM stock down about 87% in the last year, Cruze and Volt two years off, no new STS or DTS until 2014, and with Hyundai now offering the Genesis sedan and coupe, now hardly seems the time for GM to go on a buying spree, especially considering what a damaged brand that Chrysler is. But I'm sure that Nardelli is smacking his lips at the thought of a new golden parachute atop his 1/3 BILLION dollar one from Home Depot.

[1G6]

The Ultra's axing and the dearth of big RWD replacements for Buick and Cadillac are actually two of the reasons this could help GM. LY and the Hemi could be plugged in within a couple of years.

I believe the desire to keep Two-Mode in house is a huge motivation.

[lio45]

On the other hand, a mere $2 billion would probably give Cerberus immediate absolute control of GM...

($2 billion = you can buy over half of GM @ over $7 a share... current market price is in the $4s a share range)

That's probably the most realistic way to merge the two automakers.

[Buickman]

Originally Posted by lio45

On the other hand, a mere $2 billion would probably give Cerberus immediate absolute control of GM...

($2 billion = you can buy over half of GM @ over $7 a share... current market price is in the $4s a share range)

That's probably the most realistic way to merge the two automakers.

and if Cerberus waits til end of the month for the Red Ink Tag Sale they might be able to finance that $2 Billion at ZERO percent on GMAC's final 72 month contract. and if any of their executives participated in a recent lunar landing there is a coupon stackable with the financing. they better hurry though before the offer ends...

oh, almost forgot, since they own a non GM car company they qualify for a $50,000 instant value certificate.

[mikesright]

Originally Posted by mgescuro

I just don't understand the coupling of these 2 companies.
Other than giving GM a boost in "market share," there really are ZERO synergies to be had here.
That alone SHOULD preclude this merger/acquisition.

Nonsense. GM and Chrysler have a ton of synergies. I am surprised Kevin Tynan doesn't recognize that in the article.

For example:

*Chrysler does not have to develop new platforms or technologies by itself anymore
*Chrysler has a ton of assets, like buildings, proving grounds, real estate, etc, that cost Chrysler money to keep operating, that they do not need post-merger
*GM could instantly cut half the workers at Chrysler, since they don't need a Chrysler-only R&D staff anymore, and some jobs can be consolidated, like accounting or payroll or human resources.
*GM could give Chrysler brands competitive small cars and crossovers quickly

The article kind of misses the point. Chrysler has $11B in cash that GM can acquire in a potential deal, and in a merger, some of the synergies, such as selling assets and massive white-collar layoffs, can staunch the bleeding and long-term, make GM extremely profitable again with the massive economies of scale they would have.

[wildgoosechase]

Originally Posted by lio45

On the other hand, a mere $2 billion would probably give Cerberus immediate absolute control of GM...

($2 billion = you can buy over half of GM @ over $7 a share... current market price is in the $4s a share range)

That's probably the most realistic way to merge the two automakers.

I fear that is the plan but was afraid to say so.

[PAULSTS1]

I don't know how much each side has on hand, but I do know what the Government has proposed: To bailout Bad home loans, thus helping GMAC and its subprime Lender Di-Tech, and get them back on track. Also the Government plans to lend GM and Chrysler each billions of dollars, that may allow those troubled automakers a jump start on recovery. Just to remain in business is a win, win.

I understand that GM/Chrysler have been in negotiations for some time and have managed to collaborate on Truck production and Hybrid Technology. I don't know how extensive this is or could be, perhaps here lies the muse.

For the sake of the American Auto Manufacturing Industry I sincerely hope something will work out.

['Vette Dude]

If I were GM, I would trade GMAC for Chrysler and $10 billion. I would buy out all Chrysler dealers and split them up between BPG, Chevy, Saturn and Cadillac. GM now has way more dealers(they could close all Chrysler dealers that compete w/ existing GM dealers), and Saturn can go to full potential. I would close Chrysler and Dodge, And Merge Jeep with Hummer. Bamm! Now GM has 1 less competitor!

[kenman923]

No problem. The U.S. Government to the rescue.

[lio45]

We have no actual data for Chrysler, but by all estimates they're bleeding much less money than GM every passing month...

I would expect Cerberus to get GM, not the other way around.

Chrysler was bought for ~$8 billion.

Compared to that, GM is worth pocket change, and merging the two automakers (slashing the useless GM brands, keeping Chevy + Cadillac) does make sense...