GM Wants Chrysler But Can’t Get Financed

You can drive it home today as long as you can get approved

By Brendan Moore

10.20.2008

In what has to provide some measure of schadenfruede for anyone who has been declined for a car loan from GMAC, particularly since they raised their minimum credit score to 700, GM cannot get financing for the new car purchase they want, namely, buying Chrysler.

Yes, the irony for some people is probably thick enough to cut with a knife, but let’s focus on the machinations currently being exercised in pursuit of this deal.

General Motors would dearly like all or even part of the $11.7 billion cash hoard that Chrysler has on hand, and is searching high and low in the markets for some entity or combination of entities to finance the acquisition deal. It is widely assumed at this point that “Plan B” involves seeking the financing from the United States federal government, which may be interested in providing same, under the “objectionable, but necessary” doctrine it has employed in the past weeks of market turmoil.

And there is no doubt that Cerberus, Chrysler’s current owner, just wants this auto industry nightmare to end as soon as possible. They would very much like to bid a fond farewell to this experiment gone so horribly wrong.

The practical result of a successful acquisition of Chrysler LLC by General Motors, however, basically means that Chrysler just disappears into the ether of automotive history, where it will join other marques like DuPont, Stanley, Duesenberg, Plymouth, LaSalle, Willys, Studebaker, AMC, Packard, Sears, Desoto, Cord, Rambler, Stutz, Oldsmobile, etc.

An extract from a Reuters report earlier this morning:

“GM executives believe the automaker could clinch a deal that would give it a share of Chrysler’s remaining cash while allowing it to cut costs quickly, the sources said.

Although it does not report financial information, Cerberus has said Chrysler ended June with $11.7 billion.

Chrysler has 14 assembly plants and the expectation is that many of those would be in danger of being shut if it merges.

Once the deal closes, GM is only interested in keeping Chrysler plants where the No. 3 U.S. automaker has made significant investments in retooling, the sources said.

That could include Chrysler’s truck plant in Saltillo, Mexico, the Jefferson North Jeep plant in Detroit and its Belvidere, Illinois car assembly plant, one source briefed on the talks said. The sources were not authorized to discuss the talks since the companies are saying nothing on the record.

But such a deal would involve the loss of thousands of jobs, deepening a slump in rust-belt states like Michigan and Ohio that has been a key issue for both presidential candidates.

It would also mean the end of Detroit’s “Big Three,” sending the curtain down on Chrysler after a turbulent 80-year run that saw it lurch from booms to busts and back while setting smart designs with products like the first minivans and the 300 sedan.

“This would basically mean the end of Chrysler,” said Global Insight analyst Aaron Bragman.

GM could not be immediately reached for comment. Cerberus and Chrysler had no comment.”

My personal opinion is that GM is making a mistake buying Chrysler; I know they need the cash, and the other smaller plusses the deal brings, but the negatives to the deal are pretty overwhelming, from my point of view. I’d rather Chrysler goes to someone like Renault-Nissan or Tata, but I don’t get a vote.

Apparently the pace of activity around the deal is increasing steadily, according to different reports, so we might even see the deal get done this week.

Provided, of course, that GM can get someone to lend them the money. 

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.

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1 Comment

  1. What about the slim possibilty then I saw on the following article? “Chrysler could be split up between GM and Renault-Nissan” http://car-reviews.automobile.com/news/chrysler-could-be-split-up-between-gm-and-renault-nissan/5981/

    some others think it could be a move to put some pressure on Renault and Chrysler to step on it
    “Chrysler weights Renault-Nissan tie-up” http://www.theaustralian.news.com.au/business/story/0,28124,24529803-5017996,00.html

    And on a unrelated note, Kirk Kerkorian sells his Ford shares and I think it might be more then a simple coincidence…

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