Major issues resolved in GM-Chrysler talks

[Oracle of Delphi]

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.)"

Link: http://www.autonews.com/apps/pbcs.dll/arti...paign_id=alerts

[Chevy Nick]

I feel like I'm the last sane person in an insane world.

[longtooth]

I feel like I'm the last sane person in an insane world.

Why would you say that, Nick? Icons are falling left 'n right, we're living in a de facto Socialistic Democratic Republic. What's not to like? Do you have a 'dog in the fight'.

[A Horse With No Name]

Like 'Camino said, I have a BAD feeling about this.

Chris

[CMG]

It's a bit comical though if you think of the future C&G posts that would happen a year down the road if the merger ever DID happen.

LX Chryslers would be solid proven cars with a great reputation.

Chrysler (Chevrolet ) minivans would be "THE" minivan to buy.

An astounding change would either happen in the GM fan's perception of Chrysler quality, or GM fans would have to think they were now selling *ahem* "junk".

"Worst interiors in the world".

etc etc etc

This forum is in a sticky situation if you step back and look at it that way.

:AH-HA_wink:

I still say a merger isn't in the best interests of either auto manufacturer. Chrysler WILL NOT save GM. Period.

If GM has troubles it needs to address those troubles, not try to "become the world's largest automaker" at the expense of business sense. Not try to "abosrb the competition" at the expense of domestic auto manufacturing.

I'll just wait. And watch.

[Drew Dowdell]

There is simply nothing in Chrysler's stable that would make a good addition to GM other than some Jeep models and the mini'vans.

Sigma or Zeta > LX

Epsilon > Sebring/Avenger

Delta > Caliber/PT Cruiser

Gbody has no overlap

GMT-900s > Ram

Theta has no overlap

Kappa has no overlap

Lambda has no overlap

Hell, even the GMT-360s, as old as they are, are doing better than the Durango/Aspen

Chrysler brings no engine technology, transmission technology <hah!>, any significant global presence

GM doesn't need the capacity, doesn't need the legacy costs, doesn't need the headache

[ToniCipriani]

There is simply nothing in Chrysler's stable that would make a good addition to GM other than some Jeep models and the mini'vans.

Sigma or Zeta > LX

Epsilon > Sebring/Avenger

Delta > Caliber/PT Cruiser

Gbody has no overlap

GMT-900s > Ram

Theta has no overlap

Kappa has no overlap

Lambda has no overlap

Hell, even the GMT-360s, as old as they are, are doing better than the Durango/Aspen

Chrysler brings no engine technology, transmission technology <hah!>, any significant global presence

GM doesn't need the capacity, doesn't need the legacy costs, doesn't need the headache

You forgot about the Crossfire. Car's gone, but platform is still there.

[cire]

There is simply nothing in Chrysler's stable that would make a good addition to GM other than some Jeep models and the mini'vans.

Sigma or Zeta > LX

Epsilon > Sebring/Avenger

Delta > Caliber/PT Cruiser

Gbody has no overlap

GMT-900s > Ram

Theta has no overlap

Kappa has no overlap

Lambda has no overlap

Hell, even the GMT-360s, as old as they are, are doing better than the Durango/Aspen

Chrysler brings no engine technology, transmission technology <hah!>, any significant global presence

GM doesn't need the capacity, doesn't need the legacy costs, doesn't need the headache

+1

I don't even view the Jeep products or the minivans as desirable either. If this "merger" goes through, I hope it doesn't result in a repeat of the Studebaker/Packard fiasco.

Edited October 30, 2008 by cire

[Drew Dowdell]

You forgot about the Crossfire. Car's gone, but platform is still there.

The crossfire platform was dated when Chrysler got it <it was a first gen SLK>. Kappas are better.

[A Horse With No Name]

There is simply nothing in Chrysler's stable that would make a good addition to GM other than some Jeep models and the mini'vans.

Sigma or Zeta > LX

Epsilon > Sebring/Avenger

Delta > Caliber/PT Cruiser

Gbody has no overlap

GMT-900s > Ram

Theta has no overlap

Kappa has no overlap

Lambda has no overlap

Hell, even the GMT-360s, as old as they are, are doing better than the Durango/Aspen

Chrysler brings no engine technology, transmission technology <hah!>, any significant global presence

GM doesn't need the capacity, doesn't need the legacy costs, doesn't need the headache

Sadly, I think your right. What bother me is that when I look back at say the 1960's Chrysler had some great engeneering.

Chris

[A Horse With No Name]

The crossfire platform was dated when Chrysler got it <it was a first gen SLK>. Kappas are better.

Kappa's are WAY under rated. There is a reason I want a Sky/Solstice in my garage!

Chris

[A Horse With No Name]

...and as an Off topic aside, local Pontiac dealer has a Solstice GXP with black leather and a tan top, car is white. Nice combo!

Just wish I felt better about the economy/my job.

Chris

[CARBIZ]

There is simply nothing in Chrysler's stable that would make a good addition to GM other than some Jeep models and the mini'vans.

Sigma or Zeta > LX

Epsilon > Sebring/Avenger

Delta > Caliber/PT Cruiser

Gbody has no overlap

GMT-900s > Ram

Theta has no overlap

Kappa has no overlap

Lambda has no overlap

Hell, even the GMT-360s, as old as they are, are doing better than the Durango/Aspen

Chrysler brings no engine technology, transmission technology <hah!>, any significant global presence

GM doesn't need the capacity, doesn't need the legacy costs, doesn't need the headache

No, but it would be nice, given the opportunity, to wipe a competitor with 12-14 point market share off the map - and be able to 'control' their customer base with the same stroke of a pen. I realize the logistics of this seem to be overwhelming, but think of the pay off when the auto market returns to normal in 2-3 years!

I don't know how GM can pull this off, but grabbing 12 point market share (while, more importantly, not letting your competitors get their hands on it) is a very tempting and bold move.

[A Horse With No Name]

...assuming it would work out that way...yes.

But a lot of chryco customers might go somehwere elese other than GM.

Chris

[CARBIZ]

...assuming it would work out that way...yes.

But a lot of chryco customers might go somehwere elese other than GM.

Chris

That's always a risk in any business, but one thing that both GM and Chrysler have been good at is 'buying' customer loyalty with visa points, loyalty programs, etc. If Chrysler did merge with GM, I would wager that the bulk of their customers would stay with the domestics, even if that meant Ford benefited.

One way or the other, we need to see some form of shake out in the industry. There are too many brands on the market and I don't think manufacturers can go on counting on huge sales increases every year forever. When it can cost a billion dollars to bring a new, decent model to market, it is going to get harder for the 'niche' brands to survive.

The lawyers and legislators are seeing to it.

[Camino LS6]

By the time we know what this deal actually looks like, it will be a moot point.

That makes it very hard to interpret what the implications may/may not be.

[smk4565]

Maybe Toyota will buy GM and Chrysler and put them both out of their misery.

[Satty]

Unless they can dump everything except Jeep, buying Chrysler would be a huge strain on GM. The only good that would come from it is that they'd pick up the idiots who buy Dodges so they can continue saying GM is the largest automaker in the world and get a decent bump in market share.

[Camino LS6]

Unless they can dump everything except Jeep, buying Chrysler would be a huge strain on GM. The only good that would come from it is that they'd pick up the idiots who buy Dodges so they can continue saying GM is the largest automaker in the world and get a decent bump in market share.

The market share thing really shouldn't be underestimated - it could be a huge advantage when the market recovers. The question is, would that advantage be worth all of the gov't. involvement/control/compromise as well as the burden of Chrysler's liabilities? Especially if much of the Chrysler workforce (and therefore product line) has to be retained to keep the Feds happy?

[Drew Dowdell]

Looks like the deal is off or on hold.

[Camino LS6]

Taking a breather on this sounds like a good idea to me.

[Toyota.vs.GM]

Taking a breather on this sounds like a good idea to me.

Well J.PMorgan and Citigroup have offer a $13 billion collateral loan to finance the deal , but what GM dosen't like is the 20 percent interest rate.

[Drew Dowdell]

I get better than that on my Chase credit card...... then again... I'm probably more solvent than GM.

[Camino LS6]

The devil is always in the details.

[A Horse With No Name]

I get better than that on my Chase credit card...... then again... I'm probably more solvent than GM.

Sadly, I think your right.

Chris

[Toyota.vs.GM]

The devil is always in the details.

Speaking of ''devil in details'' ,did I add that GM would have to pay 20 percent interest annually?

That's why GM instead wants Government loan's , and will try all avenue's to get Government loans before choosing private loans with 20 percent annual interest from the banks.

Edited October 31, 2008 by Toyota.vs.GM

[CMG]

Strangely on the MoPar forums all the talk of the last two weeks or so of the imminent GM/Chrysler merger has now shifted.

The threads there have shifted to the "Nissan/Chrysler" merger, and it's impending certainty.

LOL

Why nobody is willing to wait for REAL news instead of taking off and running with rumor after rumor is beyond me.

Entertaining at times, but not very informative.