WSJ Report Says Chrysler-GM Merger May Happen Within Weeks

By Chris Haak

10.17.2008

This morning’s Wall Street Journal proves that the only thing constant in today’s tumultuous auto industry is, of course, change.  Just two days after we reported that Chrysler and GM were likely to table merger discussions until after the market turmoil has passed, the Journal article says that GM and Cerberus have significantly stepped up the pace and depth of discussions regarding a merger.  This is due to both GM’s critical cash situation and Cerberus’ interest in getting out of the car business.  Lenders such as JP Morgan Chase, who have done business with the companies for years, are pushing for the deal in an effort to reduce their exposure to the auto industry.

According to the report, Cerberus would like to swap its Chrysler holdings for the 49% of GMAC that GM still owns (Cerberus, of course, owns the other 51% of GMAC).  Cerberus also has interest in owning a stake in the combined GM-Chrysler entity.  In other words, rather than waiting out the market turmoil before making a deal, that very turmoil has become the impetus for a deal.

For its part, some members of GM’s Board of Directors are not keen on the idea, but GM’s management has assigned teams of people to analyze Chrysler’s operations and estimate cost savings from a potential deal.  GM projects that it could realize $10 billion in annual cost savings from a potential tie-up, plus get access to Chrysler’s $11 billion cash hoard to keep the lights on a bit longer.

Many industry analysts – and presumably the GM board members who aren’t convinced about the value of this idea – are calling this idea a Hail Mary play, one of desperation.  Well, of course it is!  GM’s back is completely against the wall, and absent a fairly dramatic, fairly fast market turnaround, the company is headed straight to a Chapter 11 bankruptcy reorganization.

Publicly, the UAW is opposed to the concept of a GM-Chrysler merger, because it will mean very severe job cuts on the Chrysler side, as well as potentially on the GM side as well, and unions ostensibly exist to protect employment.  However, the Journal article also states that behind the scenes, the UAW’s leadership is less hostile to the concept, because they are aware of the precarious situation that the companies find themselves in.  For the same reason the union approved the concessionary contracts in 2007 – an attempt to preserve the health, or some of the health, of the companies to ensure their viability going forward, the UAW’s leadership sees a GM-Chrysler merger as a least-worst sort of scenario.

Stay tuned to Autosavant for the latest developments on this dramatic story.

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Author: Chris Haak

Chris is Autosavant's Managing Editor. He has a lifelong love of everything automotive, having grown up as the son of a car dealer. A married father of two sons, Chris is also in the process of indoctrinating them into the world of cars and trucks.

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6 Comments

  1. If this goes through the real winner is Ford. If GM gets control of Chrysler much of it’s car lineup will be shutdown since there in not really any demand in the market for the majority of it. That will allow pricing pressure in the market to diminish at least until GM starts rebadging their cars as Chryslers and Dodges. Which will just add costs and mimic what GM is failing at now with Buick, Chevy, and Pontiacs selling the essentially the same cars to the same target market. The important thing is that automotive capacity in the industry will be reduced which will help everyone but GM due the extra costs they will incur trying to fold Chrysler into their kingdom. That $11 billion will be used up quickly just to merge the two. The merger would serve two purposes for GM. Give them enough cash to make it through 2009 and also assure them of being the #1 auto producer for the foreseeable future. The latter being the same ego that got GM into the mess they are in now.

  2. Lance48 has covered the bases better than any “expert” analysis I have seen. I will add one more reason this is a bad idea for GM: every manager and engineer in the company will be tied up for years trying to make the new organization work. The competition, meanwhile, will devote that time to designing and building better products and processes.

    This will be a disaster for GM and the end of Chysler. The only winners will be Ford, Toyota, Honda, Nissan, etc.

  3. David Zatz, webmaster of Allpar posted a interesting theory on his blog http://www.allpar.com/weblogs/2008/10/17/what-if-cerberus-isnt-selling-chrysler-but-buying-gm/

    Also, on a off-topic note, Carlos Ghosn had named Patrick Pelata as Renault’s COO and some think he’ll be Ghosn’s successor if Ghosn left Renault. Some begin to think then more then meets the eye…..why?

    Maybe this small but still interesting info on this French site at http://www.jdf.com/enquete/2008/10/18/04004-20081018ARTHBD00058-pourquoi-la-reorganisation-de-l-etat-major-de-renault-ne-va-rien-changer.php
    It’s from the last paragraph who mentionned the idea of a 3rd partner. Here the approximate translation: “if the talks with GM had been aborted during 2006 Fall. The time is now played in favor of Renault and it’s not excluded then this time it’s could be GM asking to Renault for a “partnership” and lowered their conditions.”

    Which it came to a theory then Peter Delorenzo mentionned on his blog Autoextremist (Rant #467), might be not far-fetched as we taught…(Here the part he mentionned then I quoted: “….I will bring forth a new scenario that’s emerging, and that is that the GM-Chrysler talks have ended for good (the word was that they were only put on “hold” due to the burgeoning financial crisis). Instead, GM has already moved on to renewed, serious discussions with Carlos Ghosn about the possibility of merging GM’s global operations with Renault-Nissan.”)

    I guess we might have more food on the table for discussions 😉

  4. The only reason Renault-Nissan could want GM, I guess, is for the plant capacity and dealer network; certainly not for the models or huge debt GM is saddled with. Otherwise, GM+Chrysler =, sadly, one big loser. I agree with Lance48 and PJT and, I guess, Stéphane, for the global operations.

  5. Smotri
    Maybe then it might be only the tip of the iceberg then Renault-Nissan had probably saw other things on GM besides the plant capacity but that’s another story for another thread 😉

  6. I sure hope they dont merger!All Chrysler needs is some leaders with passion and knowledge about the auto industry to survive!
    They need to look at Harley Davidson as an expample! If they merge that will be a slow motion death for Chrysler!This is another expample of to many Bean Counters and not enough Car Guys in management!

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