GM and Chrysler in BED?

[Bruce Nunnally]

New York Times Oct 10 2008

Put this in the HUH? category. I was about to muse that GM's stock price is so low Toyota could buy them just for the factories, but this is interesting:

By BILL VLASIC and ANDREW ROSS SORKIN

Published: October 10, 2008

DETROIT — General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the auto industry by reducing the Big Three of Detroit automakers to the Big Two.

The talks between G.M. and Cerberus Capital Management, the private equity firm that owns Chrysler, began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were “50-50” as of Friday and would most likely still take weeks to work out.

Before Cerberus bought Chrysler from Daimler there was some talk that GM was interested. It was not clear to me then or now how this would help GM's situation. GM has too many brands, so bringing in a few more seems worse than better. I look forward to hearing the advantages of the merger.

Discussion from the last time this topic came up here and here.

[JimD]

The talking heads on CNBC are all over this tonight.

Cerberus could bring some capital and help GM with the cash-flow. But I see too many brands and too many dealers in the short term.

A 50/50 chance is better than Las Vegas, but not much.

Did anyone here buy GM today at $5.05??

[Texas Jim]

The talking heads on CNBC are all over this tonight.

Cerberus could bring some capital and help GM with the cash-flow. But I see too many brands and too many dealers in the short term.

A 50/50 chance is better than Las Vegas, but not much.

Did anyone here buy GM today at $5.05??

It closed at $4.87, I think, then went back up to $5.05 after hours.

At one point today, I think it was down to an even $4.00.

I will probably regret not picking up a few thousand shares at $4.00 or even at $5.00.

[Marika]

Big mistake. GM should stay away from Chrysler. If Mercedes Benz couldn't shape up Chrysler, no one can. GM is going to sink VERY fast if they take on Chrysler. I think it's a very bad idea.

[SPreston2001]

Actually I think Chrysler has gotten much better over the years. The 300C, Dodge Magnum, & Charger are great cars. Plus with the new Challenger coming out Chrysler may be taking a turn for the better in my opinion. I dont really have a problem with Chrysler but Fords are just terrible and from my personal experiences, I have had nothing but problems with every Ford i've owned.

[BodybyFisher]

As Marika noted this would be a mistake, GM can do better than Daimlier?, how is this to benefit GM, to me Chrysler is below GM. The hemi is a gas guzzler, their styling is edgy, and their interiors cheap. Steer clear of this GM..

Did GM sell GMAC?, or are the two still related, I thought I heard that they were sold

The Chrysler 300C STR8, what an idiotic name for a car STR8. American cars are KNOWN for being great in a straight line and the 300C is no exception. To choose STR8 as a badge to me, is idiotic STR8 = STRAIGHT, and this video shows how its only good going STR8. GM has worked to change that perception in the CTS to permit their cars to compete with the european road cars. My 91 Seville was built to compete with the european cars, you think that Chrysler would have gotten the idea by now.

[Bruce Nunnally]

That's the whole question I think. GM sold most of GMAC to Cerberus. Then Cerberus bought Chrysler. The question is whether GM trade the rest of GMAC to Cerberus in exchange for the remains of Chrysler. After the financial crash last week talks halted, I guess until it becomes clear how to value things again.

But the advantage to GM is not necessarily how great it would be to have Chrysler, but how much it would help not to have GMAC any more.

Also, if Chrysler just disintegrates a lot of suppliers that GM and Chrysler share would also go under. That would cripple GM's production, and production & sales is the only way to get out of this mess.

[Marika]

That's the whole question I think. GM sold most of GMAC to Cerberus. Then Cerberus bought Chrysler. The question is whether GM trade the rest of GMAC to Cerberus in exchange for the remains of Chrysler. After the financial crash last week talks halted, I guess until it becomes clear how to value things again.

But the advantage to GM is not necessarily how great it would be to have Chrysler, but how much it would help not to have GMAC any more.

Also, if Chrysler just disintegrates a lot of suppliers that GM and Chrysler share would also go under. That would cripple GM's production, and production & sales is the only way to get out of this mess.

So maybe the only way to solve this is for GM to get rid of GMAC entirely. In the UK, GMAC is holding a lot of rotten mortgages so things aren't going to get better for GMAC, but then GM should take the suppliers under its wing. Protect your suppliers but stay away from Chrysler. For YEARS Mercedes did what it could and Chrysler still never caught on or pulled a profit. Mercedes lost BILLIONS because of Chrysler. Also, I have a friend who owns a HUGE transmission repair shop in Louisiana and he LOVES Chrysler and Toyota. Care to guess why?

[KHE]

Cerberus will eventually destroy Chrysler - they have a history of buying companies and then selling off the pieces until there is nothing left.

[Marika]

The New York Times

October 12, 2008

G.M. Said to Seek Merger With Ford Before Chrysler

By BILL VLASIC

DETROIT — Before General Motors began exploring a possible merger with Chrysler — talks that first came to light on Friday — G. M. proposed a similar deal with its other cross-town rival, the Ford Motor Company, two people with knowledge of the talks said Saturday.

G. M. executives approached Ford about a possible merger in July, but Ford rejected the idea and ended the discussions last month, these people said.

After Ford decided to remain independent amid an increasingly difficult auto market, G. M. turned its attention to Chrysler. For the last month, it has been in preliminary merger talks with Chrysler’s owner, the private-equity firm Cerberus Capital Management.

People with knowledge of the talks described the chances of a deal as “50-50.”

The behind-the-scenes maneuvering illustrates the mounting pressure on the Big Three Detroit automakers to solve their enormous financial problems and stave off bankruptcy.

A G. M.-Chrysler merger, if it were to occur, would have a wide-ranging impact on the American auto industry at one of the most critical points in its history.

Both G. M. and Chrysler are losing market share in the United States and burning through billions of dollars in cash while they scramble to revamp their unprofitable North American operations. But they may be running out of time. With auto sales at their lowest level in 15 years, both companies face the possibility of bankruptcy before their turnaround efforts take hold.

“These are not normal times,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. “The biggest problem is cash and whether these companies will have enough to survive this downturn.”

For G. M., which lost $15.5 billion in the second quarter alone, the strategy for survival appears to center on pursuing a mega-merger.

In July, G. M. approached Ford with a proposal to combine the operations of the two biggest American automakers. The talks involved several meetings between G. M.’s chairman, Rick Wagoner; its president, Frederick Henderson; Ford’s executive chairman, William C. Ford Jr.; and its chief executive, Alan R. Mulally, people with knowledge of the process said.

Ford broke off the talks in September, these people said. Mr. Ford and Mr. Mulally were said to have concluded that their company had a better chance to reorganize on its own than in tandem with another automaker.

A Ford spokesman, Mark Truby, declined Saturday to confirm the discussions with G. M., but he said Ford was determined to remain independent.

“What we can say is that we are convinced our best opportunity is to continue to integrate Ford and leverage our global assets,” Mr. Truby said. “That remains Ford’s focus.”

Talks between G. M. and Cerberus may take weeks to complete, and they could still be derailed by price issues and the challenges of integrating G.M. and Chrysler. The companies have held numerous meetings involving senior management on both sides but have yet to delve deeply into each other’s financial books and sales projections.

Cerberus is also talking with other automakers about a potential Chrysler deal, including Nissan Motor of Japan and Renault of France, people with knowledge of the situation said.

Chrysler executives have already struck some deals on products and manufacturing plans with competitors, including a deal to provide a pickup truck to Nissan in exchange for Nissan building a small car for Chrysler.

A Chrysler spokeswoman, Lori McTavish, declined Saturday to discuss any merger talks with G. M. but reiterated the company’s strategy to grow through partnerships.

“As we have said, the company is looking at a number of potential global partnerships as it explores growth opportunities around the world,” Ms. McTavish said. “Beyond those partnerships already announced, however, Chrysler has not formed any new agreements and has no further announcements at this time.”

Chrysler has struggled in the United States market since Cerberus acquired an 80.1 percent stake in the company for $7.4 billion last year from its previous owner, Daimler of Germany.

Chrysler has cut thousands of jobs, slashed production and closed plants to try to balance the impact of a 25 percent drop in United States sales so far this year. But Chrysler has a substantial amount of cash, which probably would be of great interest to G. M.

As a privately held company, Chrysler is not required to disclose its financial results. In August, however, Cerberus said that Chrysler had about $11 billion in cash reserves.

The merger talks between G. M. and Chrysler are playing out against a backdrop of radical downsizing by all three Detroit automakers. Since 2006, the companies have cut a total of more than 100,000 hourly jobs in the United States, leaving them with about 130,000 blue-collar workers in their home market.

But the companies have also experienced significant erosion in their sales in the United States. Last year, G. M. sold 3.82 million vehicles, compared with 4.81 million five years earlier. During that same period, Ford’s sales have fallen to 2.5 million from 3.57 million, and Chrysler’s sales have dropped to 2.07 million from 2.2 million. By contrast, Toyota’s sales in the United States have grown to 2.62 million last year from 1.75 million in 2002.

Andrew Ross Sorkin contributed reporting from New York.

[Bruce Nunnally]

Detroit Free Press Full Article

A merger of General Motors Corp. and Chrysler LLC could save billions of dollars but would surely mean dramatic job cuts, especially in metro Detroit where duplicated operations likely would face elimination, people familiar with discussions about the possibility said Saturday.

Advertisement

The revelation that Chrysler's private equity owner Cerberus Capital Management has been in talks with GM about a historic deal to remake Detroit's struggling auto industry also is a sign that Chrysler's fate is yet again hanging in the balance.

[Texas Jim]

Cerberus will eventually destroy Chrysler - they have a history of buying companies and then selling off the pieces until there is nothing left.

I wonder why they chose THAT NAME for their company.

Interesting reading from Wikipedia..........

In Greek mythology, Cerberus was the hound of Hades, a monstrous three-headed dog^[2] with a snake for a tail and snakes down his back like a mane, whose analogs in other cultures are hellhounds.

Other hell hounds included Orthus, his two-headed brother. Cerberus guarded the gate to Hades and ensured that spirits of the dead could enter, but none could exit.

Among his siblings are Chimera and the Hydra. He is the offspring of Echidna and Typhon. In Dante's Inferno,^[3], he appears as the guardian of the Circle of Gluttony, and is described as having a beard on each head. Cerberus is often described as once an ordinary pup, when he was mutated and captured by Hades to guard the gates of Tartarus across the river Styx. He has an appetite for live meat/flesh and attacks anyone but spirits. He is Hades's watch-dog.

Cerberus was overcome several times, but only with the aid of gods or superhuman talents:

[Bruce Nunnally]

WSJ Sunday:

General Motors Corp.'s board gave a cool reception to the idea of acquiring Chrysler LLC after GM's top management discussed the matter at a meeting last week, people familiar with the matter said.

[Bruce Nunnally]

Breaking Views - NYT

Should Go Slow

Now is not a sensible time for Detroit’s carmakers to be pondering mergers. Sure, a combination of General Motors with either Chrysler or Ford Motor could put some huge cost savings in the tank — which is probably one reason G.M. has explored a tie-up with each of its rivals. But that won’t solve Motown’s troubles.

First, they all need to shrink. Vehicle sales continue to fall, each firm’s production lineup is, to a varying degree, still heavily geared toward gas-guzzling S.U.V.’s, and each has overly cumbersome dealer networks. It doesn’t require a merger to slash these costs, but rather strong management and deep pockets.

[Bruce Nunnally]

NYT

Mr. Wagoner, G.M.’s chief executive since 2000 and the chairman since 2003, has not granted interviews since the Chrysler talks were revealed. But Mr. Wagoner and G.M.’s president, Frederick A. Henderson, are convinced that the automaker is in dire need of the cash, additional revenue and cost savings that a merger could provide, according to several people with knowledge of the talks.

The merger discussions, intended to be private, are gaining momentum as both sides want to reach an agreement within the next two to three weeks, according to people briefed on the discussions.

Financial institutions that hold Chrysler debt, including JPMorgan Chase and Goldman Sachs, are pressing Cerberus Capital Management, which owns Chrysler, to sell the automaker, these people said.

Chrysler has a lot of cash and GM wants the cash reserves. This would be a buy and close move for a lot of Chrysler. Cerberus would end up with a lot of shares of GM.

[Bruce Nunnally]

[Autonews]

Meanwhile, Reuters reported that Chrysler is considering a wide range of deals with both Renault and GM that could break up Chrysler, Reuters reported, citing people familiar with the talks .

Under this scenario, GM may acquire some of Chrysler's assets as an alternative to an outright purchase of its smaller rival, the sources told Reuters.

Chrysler assets under consideration for purchase by GM include Chrysler's minivan line, a market segment Chrysler pioneered almost 25 years ago, and its truck-production facility in Mexico, one of Reuter's sources said.

[JimD]

"Because neither Cerberus nor GM is making public statements about the talks, it’s hard to definitively say how things are going. What is clear is that a number of scenarios -- including a laundry list of automakers and possible equity stakes -- are floating around Detroit about the future of the auto industry and Chrysler in particular.

GM hopes to have a deal by the end of the month, the Wall Street Journal reported Thursday."

http://www.freep.com/article/20081016/BUSINESS01/81016084

[Bruce Nunnally]

Reuters - GM/Chrysler talks intensify, Europe carmakers warn

The core of the discussions between GM and Chrysler owner Cerberus Capital Management CBS.UL would be an asset exchange that leaves Cerberus with all of GMAC LLC and a stake in the automaker itself, sources told Reuters.

Cerberus owns a 51 percent stake in GMAC, GM's former captive finance arm, and would retain ownership of Chrysler Financial, the captive finance arm for Chrysler.

Bloomberg - Cerberus Isn't Seeking GM Management Changes in Chrysler Merger

Oct. 25 (Bloomberg) -- Chrysler LLC owner Cerberus Capital Management LP isn't seeking to remove General Motors Corp. leaders including Chief Executive Officer Rick Wagoner in a merger of the automakers, a person familiar with the talks said.

Cerberus also wants a ``meaningful'' stake, not a majority, in a combined company, said the person, who asked not to be identified because the negotiations are private. It's too early to say whether the New York-based buyout firm would have board representation, the person said.

Reuters -- UPDATE 3-GM, Cerberus step up Chrysler sale talks -sources

NEW YORK/DETROIT, Oct 24 (Reuters) - General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) has intensified talks to buy Chrysler LLC's auto operations from Cerberus Capital Management in a deal that would also involve a transfer of ownership of GMAC, people familiar with the talks said on Friday.

GM intends to seek U.S. government aid to support any deal, the sources said, potentially injecting a polarizing and urgent question of economic policy into the final stretch of the presidential campaign.

[Bruce Nunnally]

Detroit News -- Chrysler cuts may help deal

Chrysler LLC said Friday that it will cut almost a third of its white-collar work force, raising questions about whether the move is in response to difficult market conditions or a step toward preparing the struggling automaker for a possible sale.

Chrysler will cut about 5,000 of its 17,300 salaried and contract workers worldwide by Jan. 1 through buyouts and layoffs as plunging car and truck sales force Detroit's Big Three automakers to reduce costs to conserve cash.

About 95 percent of Chrysler's white-collar force is in North America, with at least 10,000 workers in Michigan, which means the state would take the brunt of the downsizing.

Possibly Chrysler making large cuts now so that a potential buyer does not have to do that on day 1. This also puts it behind them so that if they have to ask for Government loan support they don't immediately turn around and have massive layoffs. Or at least reduces the layoffs by 5k.

[Bruce Nunnally]

Detroit News

WASHINGTON -- General Motors Corp. is in talks with government officials about obtaining about $5 billion to help fund a possible merger with Chrysler LLC.

GM Chairman and CEO Rick Wagoner was in Washington last week to meet with U.S. Treasury Department officials and make a case for a quick release of funds.

His visit followed discussions in recent weeks between GM and officials from the Treasury and the U.S. Energy Department. Wagoner continues to make calls to key members of Congress, seeking support for financial aid and giving them information they can use to lobby on GM's behalf.

GM also has met with U.S. Commerce Department officials, but it is not clear what role the agency could play in providing funding to GM.

Nor is it clear what would be the main source of the money. One option is the Energy Department's $25 billion loan program, approved in September, to pay for retooling factories to build more fuel-efficient vehicles. Another potential source is the Treasury, which is managing the $700 billion bank bailout and has broad authority to loan money to corporations in emergency situations. Yet another possibility is that the Treasury could buy a stake in GM.

[Bruce Nunnally]

Detroit News

Bush Administration officials worked Tuesday to try to hammer out an agreement to give GM between $5 billion and $10 billion in financing that could help fund a Chrysler deal. GM needs as much as $10 billion to make a Chrysler merger work, in part because Chrysler's debt would have to be financed and GM would face significant restructuring and transition costs associated with a merger.

The money could come from several sources, including the auto loan program, which is intended to help automakers modernize factories to build more fuel-efficient vehicles, and the $700 billion Wall Street rescue plan, but possibly other places as well.

Reuters reported Tuesday that GM could ultimately get $10 billion, including $3 billion from the Treasury Department in exchange for equity in a merged GM-Chrysler. Reuters also reported the government could assume some of GM's pension obligations.

[Bruce Nunnally]

U.S. Rejects G.M.’s Call for Help in a Merger

DETROIT — The Treasury Department has turned down a request by General Motors for up to $10 billion to help finance the automaker’s possible merger with Chrysler, according to people close to the discussions.

The Bush administration is still considering a range of options to aid the Detroit automakers, which are losing billions of dollars and rapidly depleting their cash reserves, said auto industry and administration officials, who did not want to be identified because of the sensitive nature of the discussions.

The first step is to get the Energy Department to expedite the release of the $25 billion in low-interest loans for G.M., Chrysler and the Ford Motor Company.

Beyond that, the administration is also bringing the Commerce Department into discussions about channeling additional aid to the automakers.

More