Major Issues Resolved In Gm-chrysler Talks

[fbachman]

October 29, 2008 - 1:00 pm ET

UPDATED: 10/29/08 5:03 p.m. EDT

 

 

DETROIT (Reuters) -- General Motors and Cerberus Capital Management LP have resolved the major issues in a proposed GM-Chrysler merger but the final form of any deal will depend on the financing and government support available, sources familiar with the talks said today.

 

Both sides have agreed that GM CEO Rick Wagoner would lead the combined automaker, the sources said. A merged GM/Chrysler would be the largest automaker by global sales.

 

Another source familiar with the talks told Automotive News today that the report of agreements on the major issues was not accurate.

 

The Reuters report was backed up in part by stories published today by the Associated Press and The Detroit News. But other major news outlets had not yet reported the information by 4 p.m. EDT.

 

As GM seeks some $10 billion in U.S. government aid to support the deal, Chrysler owner Cerberus is in its own set of intense discussions with banks to refinance $9 billion of Chrysler debt, the sources told Reuters.

 

The lending consortium -- which includes JPMorgan Chase, Goldman Sachs Group, Citigroup Inc. and Morgan Stanley -- has not made a decision yet and talks are complicated because lenders have sold part of the debt to other investor groups, the sources said.

 

GM has been in talks with Cerberus about buying Chrysler since last month, but the discussions have been snagged by difficulty in securing investment or financing at a time when credit is tight and global auto sales are rapidly declining, others close to the talks have said.

 

A decision by the Bush administration to provide the government's first funding for the auto sector since the $1.5 billion bailout of Chrysler in 1980 has been widely seen as the merger's best chance for success.

 

The UAW has been approached by GM in the course of the talks with Cerberus, people familiar with the negotiations said.

 

As a condition of government support, GM has offered to merge the auto operations in a way that protects as many jobs and as much of the Chrysler sales volume as possible, sources have said.

 

Analysts have been skeptical that the merged automaker, which would control some 33 percent of the U.S. market, could be turned around quickly since GM and Chrysler are seen to be struggling with many of the same problems, including excess production capacity and too many dealers.

 

GMAC ROLE SEEN KEY

 

One element of the GM-Cerberus talks has involved GMAC, the GM-affiliated finance company in which Cerberus owns a controlling 51 percent stake, people with knowledge of the talks have said.

 

Cerberus is keen to increase its holding in GMAC and has considered merging it with Chrysler Financial, Chrysler's captive finance company, at a time when the financial firms stand to benefit from new government steps aimed at the tight credit markets, sources said.

 

GMAC, which has some $20 billion in outstanding debt and has faced a tougher market for its financing, said on Tuesday that it had been approved to borrow through the U.S. Federal Reserve's recently created commercial paper facility.

 

A U.S. Treasury spokeswoman said on Wednesday that GMAC and other automotive finance companies could sell distressed assets in upcoming auctions to shore up their balance sheets.

 

S&P IS SKEPTICAL

 

Meanwhile, credit ratings agency Standard & Poor's said it would continue to monitor the situation.

 

"It is important to note that we do not view the potential for any eventual transaction involving GM and Chrysler -- or any other automaker -- even in combination with government support, as a panacea for these companies' credit concerns," a statement released by S&P said this afternoon.

 

"New access to funding could slow the erosion of these companies' liquidity. However, rapid and massive changes would likely be integral to a business combination, raising the possibility of a financial restructuring or strategic bankruptcy filing by one or more of the parties to facilitate such changes. (Managements of both GM and Chrysler insist they will not pursue such strategies.)"

 

Bradford Wernle and Philip Nussel of Automotive News contributed to this story

[97SierraGMC]

i dont think it would be that bad if they merged.

 

2 companies working together to make good products.. should make US cars more reliable and cheaper..

[C. Charles Hahn]

From what it sounds like, this would stand to ultimately just make Chrysler, Dodge, and Jeep three more brands under the GM umbrella. It's not that I see that as a completely bad thing, but it does mean GM really should axe some of its other brands (Jeep would be a more than suitable replacement for Hummer, for instance).

 

It will be interesting to see what happens to product lineups if this really does go through. Whether this proves to be a good thing or not has yet to be seen....

 

General Motors = General Mopars?

[95Sierra2500]

No, from what I've heard, GM plans on CLOSING everything Chrysler has except for its minivans and I think the Jeep platforms. No more Dodge, no more Chrysler. No more Viper, Challenger, Charger, etc. And why would they keep them? GM already has decent cars in all the markets Chrysler occupies EXCEPT its minivans and the Jeep lineup.

 

Unfortunately, I see this as a step in the wrong direction. GM doesn't need all the extra capacity, nor do they have time to sell off plants that no one is going to want anyway (well, Nissan may want the Ram plants for their next Titan). It's going to be a BAD time to be anywhere in the Midwest once this deal goes through, because I can see ALOT of people losing their jobs.

[tobias]

i dont think it would be that bad if they merged.

 

2 companies working together to make good products.. should make US cars more reliable and cheaper..

 

You wish.

[Nick The Great]

Interesting. Seems kinda like a shame for Dodge to disappear . . .

 

Jeep would be good for GM. GM has never made a good minivan either.

 

Other than than, the Chrysler and even the Dodge cars are really nothing too great.

[Zembonez]

i dont think it would be that bad if they merged.

 

2 companies working together to make good products.. should make US cars more reliable and cheaper..

 

You wish.

 

Agreed.

 

That is the exact opposite of what would likely happen. Any time you reduce the number of competitors, you increase prices.

 

 

WOO HOO! Maybe GM will make Jeep well again... and I can buy a new Jeep.

[blueflamed03]

No, from what I've heard, GM plans on CLOSING everything Chrysler has except for its minivans and I think the Jeep platforms. No more Dodge, no more Chrysler. No more Viper, Challenger, Charger, etc. And why would they keep them? GM already has decent cars in all the markets Chrysler occupies EXCEPT its minivans and the Jeep lineup.

 

Unfortunately, I see this as a step in the wrong direction. GM doesn't need all the extra capacity, nor do they have time to sell off plants that no one is going to want anyway (well, Nissan may want the Ram plants for their next Titan). It's going to be a BAD time to be anywhere in the Midwest once this deal goes through, because I can see ALOT of people losing their jobs.

Rumour I heard, Nissan plans to quit Titan <low sales>

And I sure hope they don't stop Dodge Ram,I love the look on the 2009's, nor cease Challenger, and Viper. While GM does have the Vette, it doesn't have a '69 Camaro warped into 2010 like the Challenger.

I hope it is a new umbrella, as I hate to see more loose jobs, and worsen the economy.

[Darkanion]

Well, some of the talk in this thread... especially about which brands & models to keep and throw away... It makes GM looking at selling off Hummer make more sense. It makes Chrysler's talks about selling off Viper make more sense.. I hate to say it, but it even makes the rumors about GM shutting down GMC make more sense... 3 truck brands? Why? At least initially, Chevy and Dodge are two MUCH more distinct brands and products than Chevy / GMC and Dodge..?

 

[iscsidude]

In my mind it's the UAW that creates a market which will never be competitive.

 

If GM, Ford and Chrysler all merged, this problem would not go away. While the UAW had its place 50 years ago, it now creates an environment that will never be able to compete in an open market.

 

Look no further than the GM pension liability !!!

Every purchase of a GM vehicle is funding this liability.

I can't see that burden allowing GM to be competitive.

 

Just my .02 cents.

[95Sierra2500]

No, from what I've heard, GM plans on CLOSING everything Chrysler has except for its minivans and I think the Jeep platforms. No more Dodge, no more Chrysler. No more Viper, Challenger, Charger, etc. And why would they keep them? GM already has decent cars in all the markets Chrysler occupies EXCEPT its minivans and the Jeep lineup.

 

Unfortunately, I see this as a step in the wrong direction. GM doesn't need all the extra capacity, nor do they have time to sell off plants that no one is going to want anyway (well, Nissan may want the Ram plants for their next Titan). It's going to be a BAD time to be anywhere in the Midwest once this deal goes through, because I can see ALOT of people losing their jobs.

Rumour I heard, Nissan plans to quit Titan <low sales>

And I sure hope they don't stop Dodge Ram,I love the look on the 2009's, nor cease Challenger, and Viper. While GM does have the Vette, it doesn't have a '69 Camaro warped into 2010 like the Challenger.

I hope it is a new umbrella, as I hate to see more loose jobs, and worsen the economy.

 

 

Unfortunately it would be rather silly to keep more brands. They've already got vehicles in the same market. I can bet that if this deal goes through, the Challenger will die as soon as the first Camaro rolls off a line - GM doesn't want it. They want the customers from the Minivans and Jeep. That's it. There's nothing else Chrysler has that GM needs.

 

I can see what they're thinking - Cerebus wants the rest of GMAC. GM wants the minivans and Jeep. Swap ownership of everything, Cerebus gets a lending company, GM gets minivans and Jeep and sells off everything else as empty plants/offices (or tears 'em down and sells the land). Unfortunately, if you put THAT many people out of jobs (the 40,000 they're talking about if this goes through, plus the 4-8 other jobs per auto worker that depend on the auto industry - so 200,000 to 360,000 jobs lost), there won't be many people who can AFFORD to buy your cars or get a loan from you.

 

This might be a good thing for investors in GM and Cerebus itself, but for the overall economy (especially in the Midwest), this will bring about absolute destruction.

[tobias]

Something everyone seems to missing is the fact that this is not a buy out, but a merger. GM is strapped for cash & Cerberus Capital Management has it. GM is drawn to this deal in search of cash for survival. Cerberus Capital Management will likely be calling the shots, not GM. Right now GM has an aging full size truck platform. Dodge has a brand new full size truck platform. There is no development money for the next generation GM trucks. That program was canceled by GM due to lack of funds. If the new dodge platform turns into a seller, it will not be good for the future of GM trucks. They will not go away but might never see the development funds for future products like they did in the past.

 

I have never owned a Dodge truck or been a big fan of them but the 2009 Ram has some great features that will pull from sales of GM trucks. Just the build in bed storage & beer cooler alone are something that is long over due in full size trucks.

 

http://www.dodge.com/en/2009/ram_1500/storage/exterior/

 

I know they canceled the CXX project which was to be the next gen full-size SUV platform but I don't recall them canceling the next gen trucks. I do recall the updates being pushed out but not canceled. Did I miss something?

[Zembonez]

In my mind it's the UAW that creates a market which will never be competitive.

 

If GM, Ford and Chrysler all merged, this problem would not go away. While the UAW had its place 50 years ago, it now creates an environment that will never be able to compete in an open market.

 

Look no further than the GM pension liability !!!

Every purchase of a GM vehicle is funding this liability.

I can't see that burden allowing GM to be competitive.

 

Just my .02 cents.

Very well said and totally accurate.

 

Unions are the cancer that will destroy this country... one business at a time.

[csheatz]

I also heard that only Jeep and the Minivans will be left, everything else will be no more. Why would GM market the Ram against their other trucks? although maybe GM can affect the low MPG's that dodge is good for.

[tobias]

No, from what I've heard, GM plans on CLOSING everything Chrysler has except for its minivans and I think the Jeep platforms. No more Dodge, no more Chrysler. No more Viper, Challenger, Charger, etc. And why would they keep them? GM already has decent cars in all the markets Chrysler occupies EXCEPT its minivans and the Jeep lineup.

 

Unfortunately, I see this as a step in the wrong direction. GM doesn't need all the extra capacity, nor do they have time to sell off plants that no one is going to want anyway (well, Nissan may want the Ram plants for their next Titan). It's going to be a BAD time to be anywhere in the Midwest once this deal goes through, because I can see ALOT of people losing their jobs.

Rumour I heard, Nissan plans to quit Titan <low sales>

And I sure hope they don't stop Dodge Ram,I love the look on the 2009's, nor cease Challenger, and Viper. While GM does have the Vette, it doesn't have a '69 Camaro warped into 2010 like the Challenger.

I hope it is a new umbrella, as I hate to see more loose jobs, and worsen the economy.

 

 

Umm..... http://www.chevrolet.com/camaro/