GM, Chrysler talking merger

October 11, 2008|By New York Times News Service

DETROIT - General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the auto industry by reducing the Big Three of Detroit automakers to the Big Two.

The talks between GM and Cerberus Capital Management, the private equity firm that owns Chrysler, began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were "50-50" as of yesterday and would most likely still take weeks to work out.

A merger would be a historic event, with two of the most iconic names in American industry coming together to survive in an increasingly difficult environment. Both have roots dating back decades in Detroit and, with Ford, long dominated the auto industry - until Japanese and other foreign car makers began making inroads into the American market.

The auto industry is being pummeled from all sides - by high gas prices that have soured consumers on profitable SUVs, by a softening economy that has scared shoppers away from showrooms, and by tight credit that is making it difficult for willing buyers to obtain loans. Both GM and Chrysler have been struggling with product lineups that are out of sync with consumer demand for smaller, more fuel-efficient cars.

General Motors' stock has fallen from more than $43 a share last year to less than $5, and it is burning through its cash hoard at a rapid rate. Chrysler, as a private company, no longer needs to report its finances.

The meetings between General Motors and Cerberus began more than a month ago, people familiar with the discussions said, and the companies have held several talks involving their most senior executives. Given that both GM and Chrysler are struggling, the two sides might determine that a merger is not be in their best interests.

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