Blue Light Special on Chrysler in aisle 3
Chrysler's future studied
Cerberus Capital Management LP is exploring other strategic alternatives for Chrysler LLC, in addition to a possible merger with General Motors Corp., a person briefed on the matter said Sunday.
The source did not elaborate on the private equity firm's alternative plans, but said there were "numerous" other possible options.
GM's board of directors has appointed a committee to monitor the automaker's potential merger discussions with Cerberus, owner of Auburn Hills-based Chrysler, the source said, but no talks with GM are scheduled for this week.
The Wall Street Journal reported Sunday that GM's board was hesitant about buying Chrysler.
The paper said the idea of acquiring Chrysler was discussed during a formal meeting last week and that the board also discussed it by phone Friday.
GM and Cerberus declined to comment.
Sources familiar with the situation stress that GM's contacts with Cerberus, which first came to light Friday, are preliminary. But the prospect of two struggling automakers joining forces has aroused skepticism among industry analysts.
Despite the poor track record of automotive mergers, auto executives are in frequent contact with rivals as they struggle to cope with the tremendous challenges facing the industry.
Detroit's three automakers were in the midst of turnaround efforts when U.S. auto sales sank this year to their lowest level in at least 15 years. Forecasts for even lower sales next year have raised concerns that Detroit's Big Three may not have enough cash to get through a prolonged downturn.
GM approached its crosstown rival Ford Motor Co. about a potential linkup in July before holding talks with Cerberus.
Other automakers, including the Renault-Nissan alliance led by Carlos Ghosn, also are in regular contact with other car companies.
Ghosn, the CEO of Renault SA of France and Nissan Motor Co., has been seeking to add a North American partner to his French-Japanese alliance. Sources close to Renault say Ghosn is watching the situation in North America closely.
Nissan will produce small cars for Chrysler as part of cooperative deals concluded by the two automakers. Discussions occasionally have strayed beyond product ventures to broader cooperative possibilities, according to a source familiar with the discussions.
According to the source familiar with the GM-Cerberus initiative, the two sides are studying a variety of possibilities.
Cerberus has expressed interest in acquiring full ownership of GMAC Financial Services, after buying 51 percent of the mortgage and auto loan firm in 2006.
But the person familiar with the situation said the two sides were unlikely to reach a deal to swap GM's remaining 49 percent interest in GMAC for Chrysler LLC. That was one of the potential accords previously mentioned by sources familiar with the talks.
George Fisher, the lead outside director on GM's board, did not return phone calls Sunday. But the board has been keeping closer tabs on the company's management during this challenging economic period. Share prices dive
Investors' mounting worries are reflected in the tumbling share prices of GM and Ford. Last week, their combined market capitalization -- the value of their outstanding shares -- had fallen to less than $8 billion.
GM officials sought Sunday to play down a report in Barron's on Friday that suggested the automaker was planning to go to the Federal Reserve to seek a loan to bolster its liquidity.
GM spokesman Greg Martin said Sunday the company wasn't pursuing any such loans. "Without commenting on any specific rumor, like everyone else we're monitoring the current situation closely and keeping all options open," Martin said.
But the increasingly difficult economic and financial climate are pushing automakers to consider options they may not have considered under better circumstances.
"As conditions get increasingly difficult, I've always felt it was a possibility these companies could combine," said John Casesa, managing partner of the consulting firm Casesa Shapiro Group.
"In a distressed situation, the idea is that out of three suffering companies, one viable company could be created," he said.
Analysts and industry executives see the advantages to Cerberus of shedding Chrysler's carmaking operations.
"They didn't know what they were getting into -- nobody did at the time," said David Healy, an auto analyst at Burnham Securities. "The situation in the industry has been calamitous." Benefits questioned
But analysts question how GM would benefit from merging its auto operations with Chrysler's.
The two companies' vehicle lineups would complement each other in a few segments, such as minivans, where Chrysler is strong and GM is weak.
But overall, the combination would produce a company with too many large vehicles in its U.S. lineup.
Such a deal would compound GM's problem of having more brands and dealers than it can sustain, said Maryann Keller, a longtime analyst and head of Maryann Keller & Associates in Stamford, Conn.
"GM is in trouble having eight brands and too many dealers; why would they want three more brands and 3,000 more dealers?"
She said the deal also failed to address GM's most pressing problem: a shortage of cash. It is burning through $1 billion a month. And the outlook has worsened since GM announced a plan in July to save cash by cutting costs by $10 billion by the end of 2009 and raising $5 billion through asset sales and borrowing. Remaking the industry
But some industry experts believe GM is trying to refashion the industrial landscape through a variety of combinations.
"(GM) feels this is an opportunity across the industry to do some things that normally would be very difficult to do," said David Cole, chairman of the Center for Automotive Research in Ann Arbor.
He said the automaker's ultimate objective may be to effect an even faster reduction in the U.S. auto industry's production capacity than the pace set by the current turnaround plans agreed to by the United Auto Workers union.
Last year, when Daimler put Chrysler up for sale, GM submitted bids twice.
Cerberus, which ended up buying 80.1 percent of Chrysler, is now trying to buy the remaining 19.9 percent from Daimler.
But the transaction appears to be complicated by the prospect for Daimler of potential negative tax consequences from a sale.