General Motors and Chrysler are in talks to merge and create the world’s biggest car company. Reports in the New York Times and Wall Street Journal say the talks have been underway since the start of October 2008, and sources close to the possible deal put its chances of success at ’50-50’.
All three US car makers have seen their sales decimated in recent months and have been forced to deny that they might seek bankruptcy protection. Chrysler is privately owned by the Cerberus hedge fund, but GM’s share price slumped by nearly half last week to $4.89, a low not seen for half a century. Chrysler’s sales have fallen by a quarter and GM’s by 18 per cent so far this year.
Ford-GM merger mooted, too
GM is reported to have opened discussions with Ford about an emergency merger in July 2008, but last month Ford withdrew, believing it could revitalise its US operations alone, using new cars from its European and Japanese subsidiaries.
Analysts have questioned the benefits a GM-Chrysler merger would bring. Although administrative, development and manufacturing costs could be cut, the savings would not be immediate. Both car makers urgently require smaller, more efficient and better quality cars to win back buyers currently deserting them as cheap credit dries up and fuel prices stay high.
Chrysler and GM: the French connection
Chrysler and GM have also been in talks about an alliance with Renault-Nissan, which has the cars both require to satisfy rapidly changing US demand. But speaking to CAR at the 2008 Paris motor show, Renault-Nissan boss Carlos Ghosn specifically ruled out any further alliances until the global financial situation stabilises.
Reports in the American media suggest that the impetus for the deal may come from the Federal Government, which could offer cheap credit to GM if it takes on Chrysler. Bankruptcy for either would threaten hundreds of thousands of jobs. Both have vast pension and healthcare liabilities which they have agreed to hand over to union-administered trusts from 2010, but bankruptcy before then could force the US government to foot the bill.
Cerberus, the private-equity firm which owns 80.1 per cent of Chrysler, also owns 51 per cent of GM’s finance arm GMAC. The deal is likely to involve GM acquiring Chrysler in return for handing over its remaining stake in GMAC.
GM-Chrysler merger: the official response
Spokesmen for both companies would neither confirm nor deny the reports. ‘Without referencing this specific rumor, as we’ve often said, GM officials routinely discuss issues of mutual interest with other automakers,’ said a GM spokesman.
‘The company is looking at a number of potential global partnerships as it explores growth opportunities around the world,’ added a spokeswoman for Chrysler.
