GM looking at Chrysler?

G.M. Held Merger Talks With Ford Before Chrysler


By BILL VLASIC
Published: October 11, 2008
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.

GM, Chrysler pushing for rapid deal: paper
2 hours, 15 minutes ago

DETROIT (Reuters) - U.S. automakers Chrysler LLC and General Motors Corp are pushing for a quick merger deal ahead of the U.S. presidential election as sales continue to plummet and they cannot gain access to credit, a Detroit newspaper reported on Saturday .

Both parties are racing to conclude a deal before the election, which is 17 days away on November 4.

There has been speculation within the industry and among analysts that if Detroit's automakers face failure, they may seek a bailout from the U.S. government along the lines of the recent $700 billion package for the financial sector.


It is unclear whether the government would support such a rescue package, but both presidential candidates -- Democratic Sen. Barack Obama of Illinois and Republican Sen. John McCain of Arizona -- may be more likely to promise help for the industry before Americans head to the polls.

The U.S. auto industry accounts for thousands of jobs in Michigan and Ohio, and the latter remains a key battleground state in the upcoming election.

The newspaper report said under one possible scenario, GM would absorb Chrysler to get hold of its cash stockpile -- $11.7 billion on June 30 -- then shut down some of its brands and car dealerships in order to cut costs dramatically.

shut down about 40% of the combined company

Since August, the financial services business has chopped 102,000 jobs, according to workforce specialist Challenger Gray & Christmas in Chicago. Meanwhile, the automotive sector has cut 80,323 positions during the same timeframe, according to Challenger’s data.

In recent weeks, the financial services industry’s woes have surged, along with the certainty of more job cuts to come. Recent troubles include: Investment house Lehman Brothers filing for bankruptcy protection and Merrill Lynch merging with Bank of America. Moreover, staggering Wall Street stalwarts Goldman Sachs and Morgan Stanley announced they would soon become bank holdings companies, and will be cutting costs.

These events, plus the possibility of a Washington Mutual buyout and whatever other unexpected calamity comes down the pike, promises to accelerate the number of jobs cuts. Some industry sources estimate that over 200,000 positions will soon be gone"nearly 10 percent of the entire financial services-related workforce, ranging from bank tellers to CEOs.

DETROIT (Reuters) - The number of U.S. car dealerships closing is expected to increase into 2009 with as many as 3,800 dealerships at risk of closure because of dwindling sales and tighter credit, according to a newly released study by Grant Thornton LLP on Wednesday.

With U.S. light vehicle sales predicted to drop to the 13.7-million-unit range in 2009, the study said that about 18 percent of the total number of U.S. car dealerships would need to close to maintain sales per dealer at last year's level of about 750 units.

"An increasing number of dealers are simply closing their doors because sales have plummeted, credit has dried up, the overall retail environment is increasingly challenging and potential investors are sitting on the sidelines," said Paul Melville, a partner with Grant Thornton LLP.

"In addition, the domestic automakers who badly need retail consolidation are not spending much of their scarce capital on the problem because the economy is doing it for them," he said.

Chrysler: Would become defunct over time. Chrysler and Dodge could be folded into GM’s lineup or, most likely, shuttered completely. Jeep, which has always been one of Chrysler’s most valued brands, would continue to exist. Chrysler’s minivans are the firm’s greatest value; a Chevy bowtie " or Saturn, Buick or Pontiac badge " could simply be slapped onto a new Town & Country in very short order.

As a consumer, this sort of tie-up should almost always be viewed as a net negative. Mergers are good for companies and stockholders because they eliminate competitors. The auto industry has too much capacity and too many companies looking for buyers, but that’s a good thing for you. It keeps prices low and gives you the greatest choice.

What GM is trying to do in one swoop is eliminate a direct competitor so that it can drastically reduce supply and survive until better times " all at the expense of Chrysler, of course. Chrysler sells 26 models; under the above scenario, 18-20 of those models could be eliminated. With fewer players, all car companies could theoretically raise prices or offer fewer, smaller discounts.