GM and Chrysler merger talks continue

Talks towards a merger of General Motors and the privately-owned Chrysler Corporation continue, according to key sources in the United States.

According to the Wall Street Journal, GM and Chrysler's owner, Cerberus Capital Management, have accelerated negotiations, but securing finance for the billion-dollar deal remains "a major hurdle".

The takeout from the negotiations is that GM believes it can significantly reduce costs across the merged operations and maintain or improve sales -- both in the USA and internationally. Much of the cost savings would come from closing duplicated functions including 'backroom', development and production jobs.

The "doomsday" scenario for Chrysler employees, as described by Associated Press, is "General Motors Corp makes a deal for Chrysler LLC, keeps Jeep and the minivans, and vaporizes the rest of the company".

US-based industry analysts estimate more than half of Chrysler's 66,400 (approx) employees would lose their jobs in such a merger. The flow-on to both GM and Chrysler suppliers could also result in further substantial job loses.

The general summation of the situation is Cerberus (and its financiers) want to exit the automotive business. To this end, the equity capital fund has been engaged in discussions with a number of key marques, including the Renault Nissan alliance.

General Motors on the other hand is looking towards Chrysler's estimated $11billion worth of cash reserves. According to Associated Press's Tom Krisher: "Detroit-based GM is burning up more than $1 billion per month, with several analysts predicting it will reach its minimum operating cash level of $14 billion sometime next year."

One of the sticking points to any GM/Chrysler merger may be Daimler's part ownership of the third US brand. Once the owner of the Chrysler brand and assets, the German automaker still holds a 19.9 per cent share in the company.

Ironically, given it is seeking to exit the carmaking business, Cerberus will likely need to purchase the shareholding back from Daimler, ahead of any GM/Chrysler deal.

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