GM Had Talks About Buying Chrysler, Says Wall Street Journal

By Brendan Moore

10.11.2008

The Wall Street Journal (WSJ) is reporting early this morning that General Motors has discussed a swap with Cerberus that involves GM acquiring Chrysler LLC in exchange for giving Cerberus the rest of GMAC. Currently Cerberus owns 51% of GMAC and GM owns the other 49%.

According to the WSJ, those talks have been put on hold as a result of the recent financial turmoil in the market, but could start up again if things quiet down. But, the article quotes an individual involved in the talks, describing them as “recent, frequent and serious.”

From the article: Uniting two of the country’s Big Three auto makers would prove a watershed for an industry knocked down by high production costs and a looming recession. But at a time when both GM and Chrysler are actively dismissing talk among analysts questioning their futures, such a radical step may be part of an endgame that could further shrink Detroit. GM sees as much as $10 billion in cost-cutting if a deal were to come together, said a person familiar with its thinking.

“Without referencing this specific rumor, as we’ve often said, GM officials routinely discuss issues of mutual interest with other auto makers,” GM spokesman Tony Cervone said. “As a policy, we do not confirm or comment publicly on those private discussions, which in many cases do not lead anywhere.”

A spokesman for Cerberus declined to comment. GMAC spokeswoman Gina Proia declined to comment. Chrysler spokeswoman Shawn Morgan declined to comment.

GM buying Chrysler might seem like complete madness at this moment, given the stock market’s gyrations and the horrific slump in vehicle sales that the auto industry is wading through, but it actually makes sense on a couple of different levels.

GM would get some valuable models here and there out of the Chrysler family of brands, and could jettison the rest, along with all the production facilities, operations, etc. It would be awfully hard for the Chrysler LLC part of the equation, since there would be little left of it by the time the dust settled, but GM could come out of it in a stronger financial position. And since Chrysler’s been hoarding cash, GM could benefit by gaining some capital in the deal as well.

It is an interesting scenario, and, who knows? The Journal could be dead-on regarding the information they got from their sources. We’ll be following the story as it develops.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

Share This Post On

3 Comments

  1. I can understand why Cerberus would want to dump Chrysler, but I just don’t see how this would benefit GM. There’s nothing in Chrysler’s line up that GM doesn’t already have an answer for (Caliber/HHR & Cobalt, 300C-Charger/G8, Challenger/Camaro, etc), and even if Chrysler’s product is superior, their sales are in the tank and sticking a GM badge on their cars will not change that. Cost cutting is not enough; unless domestic automakers can convince the increasingly large import-only car buying segment to give them another look, they are doomed.

  2. I can’t see what’s in for GM, either. For Cerberus, it’s a gift, a chance to git rid of the monkey on their back that is Chrysler.

  3. That’s right, let’s lose this loser. Isn’t that what Daimler did, dumping Chrysler onto Cerberus?

Submit a Comment

Your email address will not be published.