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SOURCE: Detroit News

GM could use Chrysler's cash
Money key reason for merger discussions

Robert Snell / The Detroit News
sday, October 14, 2008

General Motors Corp. doesn't need Chrysler LLC's brands, workers or plants, but if the companies merged, the Auburn Hills automaker's $11.7 billion in cash could help GM survive the worst sales market in 15 years, analysts said Monday.

The cash, which Chrysler said it had on June 30, and an estimated cost savings of about $6 billion through combining automotive operations, is a key reason why GM and Chrysler-parent Cerberus Capital Management LP are discussing a possible merger that otherwise makes little sense for either company, analysts said.

Barclays Capital analyst Brian Johnson said GM needs $10.3 billion in fresh cash through next year, at which point the automaker could see significant savings from a new union contract and a possible sales boost from fuel-efficient models such as the Chevrolet Cruze and Volt, an extended-range electric car. A deal with Cerberus could quench GM's cash quest, said auto analyst Erich Merkle of Crowe Horwath.

"It's the smell of money," attracting GM's interest in any deal, Merkle said. "GM needs cash to live to fight another day."

Officials at both GM and Cerberus have declined to comment about their discussions.

Meanwhile, GM's shares rebounded Monday, jumping $1.62, or more than 33 percent, to close at $6.51 following news of steps being taken by major governments to support the global banking system.

But merger talks -- which have stalled amid the Wall Street turmoil -- did not improve the automaker's credit rating or convince analysts that GM would benefit from a potential Cerberus deal.

Standard & Poor's didn't budge Monday from last week's decision to place GM's credit rating on CreditWatch with negative implications, which means the rating could fall further into junk status.

Any merger would not solve GM's immediate challenge raising cash, said Robert Schulz, S&P's credit analyst.

"We would be skeptical that a GM-Chrysler transaction could easily address our primary concern by resulting in a substantial increase of current liquidity for the parties involved," Schulz said.

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 and is in the midst of cutting $10 billion in costs by the end of 2009 and raising $5 billion through asset sales and borrowing.

Those cost-cutting moves intensified Monday when GM announced it was closing plants in Grand Rapids and Janesville, Wis. The moves affect about 2,500 hourly workers at plants that produce sport-utility vehicles and parts for pickups and SUVs.

The Grand Rapids facility will close by the end of 2009 while the Janesville factory will close ahead of schedule in December. GM officials had said in June the Janesville plant, along with three others, would close in 2010 as demand slumped for pickups and SUVs.

It was unclear exactly how much money GM will save by idling those plants.

S&P believes GM has enough cash and available credit for the rest of 2008 but the deteriorating industry -- GM's sales are down 18.1 percent this year -- will be challenging next year

Meanwhile, analysts remained skeptical about any GM/Chrysler deal three days after merger talks first surfaced.

Any short-term gain from acquiring Chrysler could come at the expense of long-term health, said Deutsche Bank analyst Rod Lache.

"The fact that there is so much product/geographic overlap between the companies is precisely the reason for the large ... savings potential in a GM/Chrysler combination," Lache wrote in a research paper Monday.

A merger would not have a significant benefit or address shared problems such as too many dealers, damaged brands, falling sales, overcapacity and inability to raise cash, said Aaron Bragman, an auto analyst with Global Insight.

A combined company would have larger market share and be in a stronger bargaining position with the United Auto Workers. Another round of talks is likely considering GM's struggles, he said.
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If this is true, I didn't realize GM was that hard up for cash at the moment. I know that they are kinda riding out the storm in hopes of the UAW savings kicking in - but didn't realize the current situation was that bad.

Regardless, if this is the ONLY reason to move forward with a merger, then its a weak one.

If these companies want to eventually merge, perhaps they can talk about an industrial alliance up front and see how it goes. GM can sell Dodge a version of the G3/Aveo and Lacetti/Nubria for the short term to get them fuel-conscious products immediately. After that they can each start working to pare down their operations before any kind of merger is discussed. Cutting brands, dealerships, overlapping models, etc is a critical step before they even look to combine.

And event then, I'm not sure if this is the right move. We're talking about adding two corporate giants together when the market is moving toward smaller, more nible operations.
 

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Just thinking about this makes me sick.
 

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I guess I should also add that while this whole thing makes me feel a bit queasy, it's really GMs own damn fault. They were not aggressive enough with the union talks and ended up giving away TOO MUCH. GM made a big mistake selling its operations to put money into a savings account for a union that will squander it and ask for more later, anyway.

Everyone keeps bitching about GM taking all production out of the US. I think it's the only way to keep the company alive, at this point. The union has bled the life right out of GM's veins, to the point that GM needs to steal money from another company during acquisition, only to gain greater legacy costs in the future?

This is not the GM we all grew up with. It's really sad. I just bought a used 2004 goat and it's by far the best car I've ever owned. It's too bad fewer people understood that.
 

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Look, if we can give $130 billion to AIG because of their gross negligence and dishonesty, we can nationalize the union pension and healthcare costs and provide low interest loans for GM and Ford, who are honest, have good products in the pipeline, and provide good jobs while actually making something of value. Ford and GM will provide future benefit; wheras the financial institutions are being bailed so their demise doesn't screw the rest of us up.
 

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So first Daimler-Benz "merges" with Chrysler, bleeds them dry, and kicks them to the curb. Now GM wants to "merge" with Chrysler so they can bleed them dry too? That is sad. I hope GM at least gives them cab fare to get home the next morning! :eek:

I know Chrysler's line-up isn't the strongest right now, but this is just sad.
 

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So first Daimler-Benz "merges" with Chrysler, bleeds them dry, and kicks them to the curb. Now GM wants to "merge" with Chrysler so they can bleed them dry too? That is sad. I hope GM at least gives them cab fare to get home the next morning! :eek:

I know Chrysler's line-up isn't the strongest right now, but this is just sad.
Do not worry nissan will give cab ride to both gm and chrysler if this deal goes through
 

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The fight for survivial creates strange byproducts. Who would of thought only a few years ago that GM (or any auto manufacturer) would condsider merging with a competitor only for the purpsoe of accessing short term cash relief?
 

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I didn't realize GM was that hard up for cash at the moment. I know that they are kinda riding out the storm in hopes of the UAW savings kicking in - but didn't realize the current situation was that bad.
It still boggles my mind this comes as a surprise to people. GM's insolvency has been evident for years and it was obvious it would lead to where the company is today.

As for Chrysler, they don't have an amount of cash on hand that will do anything for GM's own cash burn problem. GM is literally draining it's coffers like we drain our bathtubs. It will go empty sooner rather than later.

There's no riding this out, GM as it's structured is screwed.
 

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Except that nothing pleases Washington more than seeing the honest man starve and die while the crooks steal it all and get away with it with the congratulations from politicians.

Look, if we can give $130 billion to AIG because of their gross negligence and dishonesty, we can nationalize the union pension and healthcare costs and provide low interest loans for GM and Ford, who are honest, have good products in the pipeline, and provide good jobs while actually making something of value. Ford and GM will provide future benefit; wheras the financial institutions are being bailed so their demise doesn't screw the rest of us up.
 

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Discussion Starter · #13 ·
It still boggles my mind this comes as a surprise to people. GM's insolvency has been evident for years and it was obvious it would lead to where the company is today.
I guess the way I should have phrased that was, "It surprises me that GM doesn't have enough capital on hand to weather the storm. They had $20 billion in cahs on hand recently from what I could remember and I thought they had enough in the bank to ride it out".

I guess that's what I should have written earlier.
 

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So first Daimler-Benz "merges" with Chrysler, bleeds them dry, and kicks them to the curb. Now GM wants to "merge" with Chrysler so they can bleed them dry too? That is sad. I hope GM at least gives them cab fare to get home the next morning! :eek:
I was thinking the same thing. Perhaps I was asleep the day that Diamler & Chrysler explained the point of their merger, but this is right out in the open. I'm still pissed about Diamler taking an improving Chrysler corporation & ripping them apart.
 

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I guess the way I should have phrased that was, "It surprises me that GM doesn't have enough capital on hand to weather the storm. They had $20 billion in cahs on hand recently from what I could remember and I thought they had enough in the bank to ride it out".

I guess that's what I should have written earlier.
Chryslers cash on hand kind of backs up my post on another thread where i speculated that the pentastar is probably doing better than we think. They may have the cash position and its operations primped up and pretty enough to attract some suitors.
 

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I'd suspect the deal is something different. Since GM is probably stopping production of the Trailblazer and Hummers, maybe they are looking at Jeep? The Jeep vehicles are still selling well for the segment and would have a good home with GM I think.
 

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Wagoner has run GM so far into the ground its pathetic. now he'll do anything to buy himself more time at the top, including the imposition of tremendous suffering on thousands of people across America. when will people wake up to the evils of this man and demand he be removed? been saying it for years. better start listening folks!
 
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