Blue Light Special on Chrysler in aisle 3
Chrysler's future studied
Cerberus looks at options for automaker; GM board monitors merger talks
David Shepardson and Christine Tierney / The Detroit News
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
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
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
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."
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.