Similar articles have been posted, but not sure if I saw this particular one on GMI yet. Sorry if it's a repost.
SOURCE: Detroit News
SOURCE: Detroit News
MORE HERECerberus eyes full ownership of GMAC; analysts skeptical
Robert Snell and Christine Tierney / The Detroit News
Saturday, October 11, 2008
Cerberus Capital Management LP is interested in acquiring full ownership of GMAC Financial Services in potentially far-reaching discussions with General Motors Corp. that could involve a merger of two of Detroit's three automakers, according to sources familiar with the talks.
But analysts and industry executives were highly skeptical of any deal involving a merger of GM's automotive operations with those of Chrysler LLC.
"If this were to take place, the winner would be Cerberus," which would benefit by combining the financial operations, said Maryann Keller, a longtime analyst and head of Maryann Keller & Associates in Stamford, Conn.
A source familiar with the preliminary talks said Saturday that Cerberus wanted to acquire the remainder of the GMAC mortgage and auto loan unit that it already controls and shed Chrysler's automotive operations.
Cerberus and GM declined to comment.
Based on reports outlining the deal under consideration, analysts said they could see the advantage to Cerberus of combining GMAC with Chrysler Financial Services and exiting the car-making business.
Cerberus purchased 51 percent of GMAC from GM in 2006 for $14.1 billion. It owns Chrysler Financial Services after purchasing Chrysler last year from Daimler AG for $7.4 billion.
"There could be a lot of cost reduction from servicing the two loan operations with one back office," said John Casesa, managing partner of Casesa Shapiro Group. He said Cerberus wanted to combine the two but GM had resisted, preferring to have GMAC dedicated to its own auto business.
However, analysts questioned the logic of a merger of GM and Chrysler's auto operations.
"The companies have a very similar footprint," said David Healy, an analyst at Burnham Securities. "Except for administrative costs, I don't see the advantage of putting them together. I don't see the merger of the car companies as being the solution for anybody's problems."
A deal with Chrysler would not address GM's pressing need to raise cash, Keller said.
On the contrary, acquiring Chrysler's automotive operations would compound GM's problem of having more brands and dealers than it can sustain, she said.
"GM is in trouble having eight brands and too many dealers, why would they want three more brands and 3,000 more dealers?" Keller said.
If GM ends up with Chrysler's automotive operations, it would face UAW scrutiny if it tried to shed jobs and plants, Keller said.
"They would have to have the UAW sitting there. I don't see how they would do it," she said. "It's lots of plant closings, lots of people gone."
On the other hand, GM and Chrysler could benefit by teaming up on the development of new models or new, more-efficient engines and powertrains, Healy said. But he said the two organizations could accomplish that without risking the complications of a merger.
For instance, GM and Chrysler have worked together in the recent development of the two-mode hybrid system, along with BMW AG and Daimler.
The discussions between GM and Cerberus, first reported Friday, appear to confirm recent speculation that Cerberus wanted to get out of the dramatically deteriorating U.S. auto industry.
"They didn't know what they were getting into -- nobody did at the time," Healy said. "The situation in the industry has been calamitous."
The outlook has worsened since GM announced a cash-raising plan in July aimed at cutting costs by $10 billion by the end of 2009 and raising $5 billion through asset sales and borrowing.
GM is burning through at least $1 billion a month. It had access to about $21 billion cash and $5 billion in available credit at the end of June but an analyst Friday said the automaker will probably need $10.3 billion in fresh cash through next year to maintain a minimum liquidity of $14 billion.
Chrysler executives told dealers last month that the company has lost at least $400 million this year. Chrysler Holdings LLC, which includes the auto company and its finance arm, Chrysler Financial, lost $510 million in the first three months of 2008, the company said in July. Chrysler lost $1.6 billion in 2007.