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SOURCE: Automotive News
GM and Chrysler mull job-sparing deal for U.S. aid
October 27, 2008 - 12:01 am ET
DETROIT (Reuters) -- General Motors and Chrysler LLC's owners are discussing a merger that would keep some of Chrysler's operations intact and save jobs with the aim of securing U.S. government financial aid the high-stakes deal would require, people familiar with the talks said yesterday.
A merger under these terms would give control to GM but leave Chrysler's owner, Cerberus Capital Management, with stake of less than 10 percent in the combined company, according to the sources who were not authorized to discuss the talks publicly.
Such a merger would shake up the U.S. industrial landscape and create an automaker with about a third of the U.S. car market by sales. But its immediate success would hinge on the willingness of the next U.S. administration to step up with billions of dollars in immediate aid.
The amount required would dwarf the $1.5 billion in loan guarantees that kept Chrysler from failure in the industry's last government bailout almost 30 years ago, the sources said.
It would also require the backing of GM's board, which has been steadfast in backing CEO Rick Wagoner through a painful and so-far failed restructuring effort since 2005. The board has withheld judgment on the proposed merger so far.
A deal brokered with the support of U.S. lawmakers would leave GM executives walking a delicate balance in managing a bigger but still deeply troubled automaker.
Costs and production would have to be slashed. But the merged company would also have to show it represented a less painful alternative for American workers and suppliers than the failure of one or both of the struggling auto giants.
"It's clear that there are three parties at the table. There's GM, Cerberus and then there's the government," said one person briefed on the talks.
GM, Chrysler and Cerberus declined to comment on Sunday.
Until now, attention has focused on the prospect of a GM acquisition in which the larger automaker would move quickly to cull Chrysler's slow-selling vehicle line-up and cut more than half of Chrysler's 66,000 employees.
Analysts have been skeptical that a deal even under those ruthless terms could deliver sufficient savings since GM and Chrysler face many of the same problems, including an excess of workers, dealers and factories, along with product line-ups that rely heavily on sales of gas-guzzling trucks and SUVs.
LENDER OF LAST RESORT?
While a deal that keeps more operations afloat would risk deepening those problems of excess capacity, it could also win government backing and provide GM with much-needed liquidity.
Analysts say GM would also almost surely opt to shut down Chrysler's separate supply of engines, transmissions and powertrain components and merge those with its own.
GM has failed to find an outside investor to help fund its acquisition at a time when global auto sales are slowing and sales in the U.S. market are dropping toward the lowest level in two decades, sources said last week.
In addition, Chrysler creditors have been wary of restructuring its $7 billion bank term loan due in 2013, a person familiar with the financing effort said last week.
That has put the focus on the U.S. government as lender or investor of last resort to save the deal, sources said Sunday.
By retaining a stake in the combined GM/Chrysler, Cerberus hopes to benefit from an auto recovery, they said. It acquired an 80.1 percent stake in Chrysler in a 2007 deal with Daimler AG.
GM sees a retained Cerberus stake as helping to align the interests of finance company GMAC with sales for its brands including Chevrolet and Cadillac, helping to bridge a widening gap between GMAC and GM's more than 6,500 U.S. dealers.
MORE HERE
GM and Chrysler mull job-sparing deal for U.S. aid
October 27, 2008 - 12:01 am ET
DETROIT (Reuters) -- General Motors and Chrysler LLC's owners are discussing a merger that would keep some of Chrysler's operations intact and save jobs with the aim of securing U.S. government financial aid the high-stakes deal would require, people familiar with the talks said yesterday.
A merger under these terms would give control to GM but leave Chrysler's owner, Cerberus Capital Management, with stake of less than 10 percent in the combined company, according to the sources who were not authorized to discuss the talks publicly.
Such a merger would shake up the U.S. industrial landscape and create an automaker with about a third of the U.S. car market by sales. But its immediate success would hinge on the willingness of the next U.S. administration to step up with billions of dollars in immediate aid.
The amount required would dwarf the $1.5 billion in loan guarantees that kept Chrysler from failure in the industry's last government bailout almost 30 years ago, the sources said.
It would also require the backing of GM's board, which has been steadfast in backing CEO Rick Wagoner through a painful and so-far failed restructuring effort since 2005. The board has withheld judgment on the proposed merger so far.
A deal brokered with the support of U.S. lawmakers would leave GM executives walking a delicate balance in managing a bigger but still deeply troubled automaker.
Costs and production would have to be slashed. But the merged company would also have to show it represented a less painful alternative for American workers and suppliers than the failure of one or both of the struggling auto giants.
"It's clear that there are three parties at the table. There's GM, Cerberus and then there's the government," said one person briefed on the talks.
GM, Chrysler and Cerberus declined to comment on Sunday.
Until now, attention has focused on the prospect of a GM acquisition in which the larger automaker would move quickly to cull Chrysler's slow-selling vehicle line-up and cut more than half of Chrysler's 66,000 employees.
Analysts have been skeptical that a deal even under those ruthless terms could deliver sufficient savings since GM and Chrysler face many of the same problems, including an excess of workers, dealers and factories, along with product line-ups that rely heavily on sales of gas-guzzling trucks and SUVs.
LENDER OF LAST RESORT?
While a deal that keeps more operations afloat would risk deepening those problems of excess capacity, it could also win government backing and provide GM with much-needed liquidity.
Analysts say GM would also almost surely opt to shut down Chrysler's separate supply of engines, transmissions and powertrain components and merge those with its own.
GM has failed to find an outside investor to help fund its acquisition at a time when global auto sales are slowing and sales in the U.S. market are dropping toward the lowest level in two decades, sources said last week.
In addition, Chrysler creditors have been wary of restructuring its $7 billion bank term loan due in 2013, a person familiar with the financing effort said last week.
That has put the focus on the U.S. government as lender or investor of last resort to save the deal, sources said Sunday.
By retaining a stake in the combined GM/Chrysler, Cerberus hopes to benefit from an auto recovery, they said. It acquired an 80.1 percent stake in Chrysler in a 2007 deal with Daimler AG.
GM sees a retained Cerberus stake as helping to align the interests of finance company GMAC with sales for its brands including Chevrolet and Cadillac, helping to bridge a widening gap between GMAC and GM's more than 6,500 U.S. dealers.
MORE HERE
