Chrysler, GM talk of joining forces
Possibilities reportedly may include merger
WASHINGTON — General Motors and Chrysler, bruised by the severe downturn in the automobile industry, have held preliminary discussions about combining operations, including a full-scale merger, according to people familiar with the talks. Whether the discussions were progressing and what, if anything, would result remained unclear over the weekend.
A tie-up between the automotive giants would be historic for the industry and solidify GM’s position as the global sales leader, which it has been in danger of losing to Toyota Motor Corp. GM and Toyota finished last year essentially even in vehicles sold worldwide.
Spokesmen at GM and Cerberus Capital Management, the private-equity group that owns Chrysler, declined to comment. In a statement, Chrysler said that “the company is looking at a number of potential global partnerships as it explores growth opportunities around the world” but added that it had no further announcement to make.
An official at one of the companies with knowledge of the discussions said the situation appears to be “fluid” as Cerberus pursues other potential buyers for Chrysler. The officials familiar with the talks asked not to be identified because they weren’t authorized to be quoted about the discussions.
Both GM and Chrysler have been hit hard by the global credit crisis and pullback in consumer spending. Many consumers shopping for automobiles are having more difficulty getting auto loans. GM’s U. S. sales have dropped 17 percent so far this year, while Chrysler’s have slumped 25 percent.
Last week, GM’s share price plunged to the lowest level since 1950 on fears that the company will not be able to weather the downturn.
Detroit’s automakers, including Ford, have been dogged by bankruptcy rumors all year. J. D. Power and Associates said last week that the global auto industry might “outright collapse” next year.
The New York Times, meanwhile, reported Saturday that GM had held merger talks in July with Ford, but Ford rebuffed GM. Ford officials couldn’t be reached late Saturday to comment.
The dash for industry pairings and the possibility of a dramatic step that would sweep aside Chrysler, an 83-year-old American icon, shows just how weak economic conditions could reorder the automotive landscape, analysts say.
A GM-Chrysler merger also could affect GMAC Financial Services, the giant housing and auto financing division that GM partly spun off to Cerberus in 2006. Like other financial institutions, GMAC has encountered enormous difficulty in tapping capital markets as other lending institutions pull back. That, in turn, restricts GMAC’s ability to lend money to automotive dealers, car buyers and homeowners. Cerberus owns 51 percent of GMAC.
Chrysler, the smallest of Detroit’s Big Three, has changed hands twice in the past decade. In 1998, it shifted from a standalone U. S. public company by pairing up with Germany’s Daimler-Benz. Last year, Cerberus purchased an 81 percent stake in Chrysler, becoming the latest owner.
Last month, Cerberus and Daimler confirmed that talks were under way for Daimler to sell its remaining stake in Chrysler to Cerberus. David Healy, analyst with Burnham Securities, said the sale would give Cerberus the flexibility to pursue new joint venture deals.
Healy said big automotive mergers usually don’t work out.
“A lot of money could be saved on joint ventures — new powertrains, new models, alternative fuel vehicles, hybrids,” Healy said. “Whether you need a full merger to accomplish that, I’m a little skeptical.”
For Chrysler’s workers, a new owner could open a painful new chapter. Fear already runs deep given the company’s turbulent history, including brushes with financial disaster in the late 1970s and takeover battles with billionaire investor Kirk Kerkorian in the 1990s.
Last year, during contract negotiations with the United Auto Workers, union workers struck Chrysler for six hours. At one point, police briefly sealed off highway ramps near the company’s Auburn Hills, Mich., headquarters as angry workers filled the streets.
The current downturn is worsening the jobs trend in the U. S. auto industry. Over the past eight years, Michigan has lost 47 percent of its vehicle manufacturing jobs and 27 percent of other manufacturing jobs, according to a government analysis. Nationally, the losses have been about 21 percent in each category.
Ford Motor Co., the second-largest U. S. automaker, is considering selling its controlling stake in Japan’s Mazda Motor Corp. to bolster cash as sales fall, a person familiar with the deliberations said.
A sale of the one-third holding in Mazda isn’t certain, said the person, who asked not to be named because Dearborn, Mich.-based Ford hasn’t made a decision. “We do not want to comment on speculation,” Ford said Saturday in a statement.
Dumping Mazda would help Ford blunt a mounting cash drain as the U. S. auto market sinks to the lowest levels since 1991. Ford’s domestic sales slid 35 percent last month, outpacing a 27 percent industry drop, on sagging demand for the pickups and sport utility vehicles that provided most of its 1990s profits.
“It does make sense to sell off Mazda,” said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Mich. “Mazda has no role in Ford’s strategic plan.”
Bloomberg News contributed to this report.
