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Investors warm up to GM-Chrysler

4K views 33 replies 24 participants last post by  Bravada 
#1 ·
SOURCE: Detroit News

Thursday, October 30, 2008
Investors warm up to GM-Chrysler
Securing fed aid could pave way for private financing of complex deal.

Christine Tierney and David Shepardson / The Detroit News

Private investors have shown interest in General Motors Corp.'s proposed acquisition of Chrysler LLC and may help finance the deal if the U.S. government agrees to provide funds, sources close to the negotiations said Wednesday.

GM and Cerberus Capital Management LP, Chrysler's majority owner, seek as much as $10 billion in federal loans and other aid to finance a deal.

Outside investors have expressed interest in the deal, but Cerberus is focusing on lining up crucial government aid, said one source familiar with the situation.

In addition to lobbying top Bush administration officials, GM and Cerberus executives have reached out to both presidential candidates to seek support for a deal, sources say.

The government signaled its responsiveness this week, with the U.S. Energy Department moving to speed up the release of $25 billion in low-cost loans that Congress authorized earlier this year for the auto industry.

While a GM-Chrysler combination would lead to thousands more job cuts, the deal is increasingly being presented as the best alternative to the possible collapse of one or more of Detroit's automakers in a rapidly deteriorating environment.

Industry analysts say the U.S. auto market's slump to its weakest levels since the 1980s is forcing the industry to consolidate.

"A merger of some type is likely to occur because the economics now are not sustainable for three separate Detroit automakers," Patrick Anderson, CEO of the consulting firm Anderson Economic Group, said Wednesday.

GM and Cerberus negotiators have made progress in the talks, reaching agreement on some key issues, said sources familiar with the situation.

Cerberus also is in talks with the Renault-Nissan alliance, but the two sides have been unable to agree on a valuation for Chrysler.

Carlos Ghosn, CEO of Renault SA and Nissan Motor Co., has said publicly that automakers are unlikely to take part in deals requiring cash investments during the global credit crunch.

Last week, Daimler AG said it had written down the book value of its remaining 19.9 percent stake in Chrysler to zero.

Cerberus purchased 80.1 percent of Chrysler in August 2007 from Daimler for $7.4 billion, with most of that money going into Chrysler.

But within months, the industry spiraled into a downturn that has grown increasingly perilous for Detroit's automakers. With credit hard to obtain and U.S. consumer confidence at historic lows, some analysts estimate the selling pace slowed this month to its lowest level since 1983.

GM Chairman and CEO Rick Wagoner was in Washington on Friday and Monday warning policymakers of the dire state of the automaker's finances.

GM has lost $18.8 billion in the first six months of the year -- and nearly $70 billion since 2004.

On Wednesday, the biggest U.S. automaker found itself denying rumors that it was seeking help from Japan's Toyota Motor Corp.

Detroit's automakers are asking Washington to double the $25 billion in low-cost loans that were intended to help the auto industry produce more fuel-efficient cars.

They also are trying to position their auto loan financing operations to benefit from the $700 billion bank bailout.

Cerberus owns 51 percent of GMAC Financial Services, which it acquired from GM in 2006, and wants to obtain at least half of GM's 49 percent stake in the lending firm as part of a deal. That would allow GMAC to become a bank holding company eligible for a capital infusion under the bailout plan.

In addition to the difficulties lining up financing in the volatile environment, the deal faces another big hurdle, a GM official said -- winning the backing of the United Auto Workers union.

Without the UAW's support, congressional Democrats might not support a deal.

A source familiar with the situation said GM and other officials have spoken with the presidential candidates, Republican Sen. John McCain and Democrat Sen. Barack Obama, as part of their effort to line up support in the capital.

A spokesman for Cerberus, Peter Duda, said no meetings or conversations involving Cerberus officials took place.

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#4 ·
Perhaps so. I don't know what else to think at this point.

I don't want either company to go under, I understand there are huge risks and possibilities of failure if they merge or don't merge.

I'd rather see them NOT merge and stay independent. I'd puruse a deal in which Chrysler ink an cooperative/industrial alliance with either GM, FoMoCo, Renault-Nissan, or Fiat than be taken over completely or absorbed by another automaker. But there many not be any time to do this and Cerberus is holding all the cards. They don't want an alliance - they want the company taken off their hands and any kind of alliance or minority shareholder stake won't alleviate them of the 80% of the company they'd have to retain.

This is probably the worst rough patch they've had to deal with in 30 years, so who knows what the eventual outcome will be.

However, if it means breaking up Chrysler to sell in pieces or the company becoming a takeover target for some foreign outfit or see even more job losses if either company fails -then perhaps this is the only way to do it.

It sucks no matter what, but I don't know what kind of alternatives there are in this environment where everyone is hurting, credit is tight, the economy is slowing and so much is uncertain.
 
#5 ·
Cerubus is looking for a sucker to by a pig with lipstick, could such a fool be found? Nobody is going to buy Chrysler products even if GM buys them. Resale on new 2009 Dodge pickup after 24 months 1,000 dollars if your lucky. Look out for Chrysler sales next week, prepare to be shocked. The only investors who will make anything out of this are the owners of the hedge fund who stop bleeding money into the car pit. Why does GM want to play the fools part? Why doesn't GM learn the lesson of the Fiat money pit?Why did BMW sell Rover? GM makes good cars and trucks that sell well in this credit market, and GM would do well by having a new captive finance company so they could sell more cars.
 
#10 ·
The only reason that this is going anywhere is that GM wants rid of GMAC, Cerberus wants rid of Chrysler, and neither has had any luck disposing of them.

GM is a car company, Cerberus is a financial one, and neither has been doing a very good job lately with their non0core business.

Patriotism doesn't enter into it.
 
#11 ·
Why would GM want to get rid of GMAC? It, along with Chrysler Financial just qualified for the bailout.

There's an old saying in business dealings. If you look around the room and can't figure out who the sucker is, it's you.
 
#20 ·
hahahahaha!

Good one.

The sucker is the taxpayer. We aren't 'in the room' either.

I'm starting to believe this whole 'shotgun' wedding has something to do with getting out before the election. There's a whole desperation feel - particularly with what you hear from Cerberus. It has this same panicked tone we got from Bernanke ("RUUUUUUUUUUN!!") before they put the arm on us for a rescue of wealth - who says a fool and his money are soon parted? When you're making money by moving piles of money around, you've got Uncle Sam to catch you when you fall.

The big money pirates are taking as much gold as they can stuff in their sacks before facing a new President.

Obama keeps talking about how we'll be making these new efficient cars and making them in America - I wonder if this is tied to the 25Bill loan guarantees and floating the rumour of a unit body Suburban (to 'retool' for efficient vehicles).

Please Mr. Wagoner. I beg you to let this idea sit on the shelf for a few weeks.
 
#15 ·
I'm not saying that GM shouldn't be helped, I am saying that tax payer money needs to be used wisely. The current management of GM isn't saying how they will go forwarded other than "trust us". Share holders and employees have all "trusted" the current management. Lee Iacocca had a plan.
 
#19 ·
People don't seem to get one thing. Look at it as a taxpayer investment. Let's say the Government gives the Big 3 the loans as requested. Either:

A) GM will collapse, and the Government will make money on the sale of GM/Chrysler assets and in turn will make a profit for taxpayers.

B) GM/Chrysler will thrive and pay back the debts, leading to a substantial profit for the Government-also known as Tax-payers.

The Government paid what amounts to pennies on the dollar for the worlds largest insurance company. Believe me, they will make money on this deal and that deal n the end.
 
#27 ·
A) GM will collapse, and the Government will make money on the sale of GM/Chrysler assets and in turn will make a profit for taxpayers.
If GM fails, where do all the GM and Chrysler workers go? Is the government going to send everyone a cheque out of the money they make selling off bits and pieces?
 
#21 ·
i personally like GM+Chrysler. managed properly, it could pay dividends. the only problem is that the management part of that equation seems to be at question here. there is hope though. GM is on the upswing, and Chrysler had a good thing going a few years ago, so both companies have shown the ability to make something happen. if they can manage to get someone in there that is a straight car guy, totally into the product, then this could work wonderfully. GM needs to drop a couple of brands, which should happen with or without the merger anyway, and take on a slimmer Chrysler. dump GMC, Hummer, and possibly Pontiac and replace them with focused versions of Chrysler, Dodge, and Jeep (meaning no overlap) and this could be incredible. leave it all as it is now with 100 rebadged versions of everything and it's destined to fail. the key is the product.
 
#26 ·
The fact that GM and Chrysler haven't slimmed down and put many of these things in place on their own tells me that it's not going to happen if they combine. GM is bleeding 1 billion per month... they're going to bleed more with Chrysler tacked on. I don't grasp how, losing more money per month, they're going to last long enough to ever make any cost savings by absorbing Chrysler.
 
#25 ·
Chrysler would bring a few things to the table with this arrangement. The 300, CHARGER, CHALLENGER, RAM trucks, JEEP, and minivans, along with MB proprietary technology it retains rights to. The HEMI motor, which is nearly a brand in unto itself. General Motors could benefit mightily, and it might save them both. Jobs will be lost, but R&D overlap could be eliminated. General Motors would gain a 7 speed auto transmission and a 6 speed truck transmission, along with a viable RWD passenger car platform as well.. Done right, this could work.
 
#33 ·
Some of you guys are missing the point, jobs are going to be lost regardless. If they can make this work financially and product wise GM is going to win(I realize this is a big IF but...). They take a competitor off the road and increase their share of the market all in one swoop. No doubt some brands are going bye bye, maybe GMC and Buick or Pontiac or Chrysler. GM gets a good minivan finally and the Jeep brand. Maybe they can figure out a way to combine Jeep and Hummer into a stronger brand with Jeep being the cheaper models and Hummer being the expensive models. There are many possibilities both good and bad. Let's hope they structure this right so that what emerges is a stronger joint company that starts moving market share in the right direction.
 
#30 ·
If Ford keeps a steady course and keeps on trucking with vehicles like the new Fusion and F-150, they'll earn my respect. The Fiesta is on it's way... they plan to get back to a truly global Focus design for the next generation... they're adding EcoBoost and Sync and hybrids and other cool technolgoies to their lineup... they seem to have a much better realisation that surving today is important, but getting ready for tomorrow is important to.

Depending on how this GM-Chrysler kerfuffle goes, I can see many people jumping ship to Ford. Many will go to imports, but I respect what Ford is doing right now.
 
#34 ·
1. The Gov't - and the taxpayers - are going to pay for that anyway, all the social security benefits for the workers who will lose their jobs both in manufacturing, design, marketing and sales, the social and fiscal costs of lost dealerships etc.

2. Jobs DO NOT have to be lost anyway. Cerberus simply stands with their arms crossed refusing to further manage Chrysler and says "jobs have to be lost". They are basically saying "either we bankrupt Chrysler just so, or we get GMAC in return".

3. It just occurred to me this morning that the Gov't is actually partially responsible for putting the Big Three where they are. The American Gov't/Congress created the world's best (or worst) poster case for misguided regulation and poor handling of externalities - CAFE.

Basically, what CAFE did was PENALIZE automakers for making cars and trucks which were at the same time DEMANDED by the customers. Rather than curb demand and steer it towards more fuel-efficient vehicles, the regulators punished the automakers because people wanted something else. So the automakers continued to supply Americans with what they wanted, while bending over backwards to aling themselves with CAFE.

European and Japanese automakers have no problem churning out attractive, small and fuel-efficient cars. This is not because European and Japanese customers want small and fuel-efficient cars - many of them would rather drive a '58 Eldorado Brougham or even a Navigator - but because fuel is heavily taxed and people have little choice. Go figure!
 
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