Chrysler, GM considering possible merger.

Chrysler, GM considering possible merger.

On the front page of its Business Day section, the New York Times (10/13, B1, Vlasic, Bunkley) reports, "The Motor City spent the weekend considering the once-unthinkable prospect that its traditional Big Three automakers might shrink to the Big Two." The reported merger talks between General Motors (GM) and Chrysler are described as "yet another gut-punch to a city reeling from a mayoral scandal, soaring foreclosure and unemployment rates, and huge losses in its hometown auto industry." According to "industry experts...little is to be gained by merging" the two automakers. Instead, "industry analysts say GM should focus on shrinking to a size that is more in sync with the market." But even so, the analysts note that a combined GM-Chrysler would have roughly one-third of the U.S. market share, putting it "far in front of Toyota." Chrysler's reported $11 billion in cash reserves are also seen as being attractive to GM.

Another New York Times article (10/12, A32, Vlasic) pointed out that, prior to its discussions with Cerberus regarding Chrysler, "GM proposed a similar deal with...the Ford Motor Company." However, "Ford rejected the idea and ended the discussions last month," sources said.

"General Motors Corp.'s board gave a cool reception to the idea of acquiring Chrysler LLC," according to the Wall Street Journal (10/13, Stoll, et al.), arguing "that Cerberus seemed to be offering GM too little in the proposed deal." This "cautious reaction...suggests" that the board "may assert itself more than in the past if [GM Chief Executive Rick Wagoner] and his team try to move ahead with a Chrysler deal." The proposed deal involved Chrysler owner Cerberus Capital Management "swapping its 81.1 percent stake in Chrysler for GM's 49 percent stake in GMAC, a big auto and home lender," of which Cerberus "owns the other 51 percent." GM is said to have "been considering whether to sell all or part of its minority stake in GMAC, which the most recent estimates suggest is worth roughly $6 billion to $7 billion." The Journal adds, "Few in the auto industry believe acquiring Chrysler would be the right move for GM."

The Washington Post (10/12, A15, Freeman) quoted David Healy, an analyst with Burnham Securities, who "said big automotive mergers usually don't work out." Healy explained, "A lot of money could be saved on joint ventures -- new powertrains, new models, alternative fuel vehicles, hybrids. ... Whether you need a full merger to accomplish that, I'm a little skeptical." Reports of the merger follow a prediction from J.D. Power and Associates "that the global auto industry might experience an 'outright collapse' in 2009."

The AP (10/12, Krisher) quoted industry analysts who said that, "for General Motors to acquire Chrysler, GM would have to get desperately needed cash as part of the deal." One analyst explained, "If you put two auto companies together, both that are losing money, both that are losing market share, you've just got an auto company that's losing market share faster and losing more money." Another added, "There's got to be some sort of outside motivation for them to do that sort of deal, especially in this market." Some analysts believe that the "outside motive...could be the federal government, which would inherit huge pension liabilities if either company went under."

UPI (10/13) reports "that sources familiar with the discussions predict major job cuts at Detroit-area plants as duplicated operations are eliminated should the deal materialize." Bloomberg News (10/12, Green), AFP (10/12), the Detroit Free Press (10/12, Higgins, Merx), and another Detroit Free Press (10/11) article also reported aspects of the story.