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Report: GM, Chrysler in Merger Talks

The Detroit News reports that General Motors Corp. and Cerberus Capital Management LP have been in preliminary talks for more than a month about a possible merger with Chrysler LLC, according to “a person familiar with the matter”. Cerberus owns 80.1% of Chrysler. The merger talks were first reported by The New York Times.

Cerberus, the private equity fund, had proposed swapping Chrysler for the 49 percent of GMAC that GM still owns. Cerberus purchased 51 percent of GM’s lending arm in a $14.1 billion deal in 2006.

David Healy, an auto analyst at Burnman Investment Research, said auto mergers have a bad track record. “You would think Chrysler would have learned its lesson,” Healy said. “They have primarily destroyed shareholder value.” Healy said GM and Chrysler could benefit from collaborating on vehicle development programs, but not a top-down merger. They also could benefit from reducing capacity and sharing plants and engineering resources, he said.

Comments

Henry Gibson

It is very easy to dismiss the US automobile companies as insignificant. What cannot be ignored is the part played by the US governments in the demise of industry in the US. The failure to keep the energy market an open market and allowing capital to be drained in unhindered speculation on crude oil, has eliminated wealth for investment in industry. The almost total lack of environmental and safety regulations in many foreign countries is an outright gift of value to the products of those countries. The fact that the producers and employees of those products do not pay Social Security and income taxes to the US government funds is also a free gift to those producers and a detriment to US companies who must pay those taxes. It is certain that jobs have been exported this way to an extent that far exceeds the effects of NAFTA. Japan survived the first energy extortion, promoted by the US government, by exporting high priced electronics to the US. China survived the second US supported energy extortion by doing the same whilst building coal and nuclear power plants and coal to liquid facilities that are impossible in the US. All imported products to the US should be burdened with duties equal to what the US treasury would gain if those products were made in the US as well as the environmental and safety costs that would have been paid by US companies. Whilst the US economy is being lost, there should be ZERO consideration of green house gases in laws and regulations. Even though reactors are the fastest and cheapest way to reduce CO2, The US government has chosen to make Nuclear Power plants impossible to build by creating standards that are not economically justified and allowing opposition to highly safe storage of not highly dangerous used fuel. Even if only burried in the middle of a dumptruck load of sand this fuel would be less dangerous than the cigarette that you are smoking or even the gasoline in your tank. It is statistically far less dangerous than the cellphone in your hand whilst driving. ..HG..

Treehugger

Henry

Everybody enjoyed the outsourcing of manufacturing jobs, the rich because they can increase their profits thank to low labo cost, the less rich because they can buy all this cheap stuff made in china. So I am not sure the tight environmental regulation are the problem here.

As for the mergin, I am not sure it is a good idea, I understand that Cerebus wants to get out this mess, but GM is already broken so to add the burden of another broken compagny will not help. It would be better that these 2 compagnies partnership to mass produce hybrid volt type drivetrain and lower the cost. Or chrysler could go in bed with Renault or simply diseappear.

But I agree that the huge aomount of money that is fleeing the country trhough oil import is the government's fault. The problem started in the earaly eighties when Carter tried to impose tougher CAFE, he was broken by the lobby of the big 3 (particularly Chrysler) who wanted to develop their SUV strategy. And everybody in US enjoy the SUV, it even became a cultural fact. So should we blame ?

Rich

Bottom line for me is that no Detroit automaker has ever made a car I want to buy - new or used. And I don't have any hope that they ever will.
They have made large unreliable gas-hogging unsafe cars for decades. They have done anything they can to stop government mandated safety features, reduced fuel consumption, less pollution, etc.
They deserve to bite the dust. Get it over with.

HarveyD

@Rich:

Many will agree with you.

Do the Big-3 really deserve to survive? Rumors are that all 3 will fold or merge into one within a few months/years.

Had they produced 60+ mpg practical lighter more efficient vehicles (+ HEVs and PHEVs) USA would not have to import oil at the rate of $500B/year and 5 million vehicles/year and would not need very costly oil wars.

However, the quest for quick easy profits is not limited to the Big-3. Banks and financial instituitions have done much more to weaken USA, with everbody's money.

One may always buy imported better/small cars but buying an oversized, overvalued house, without the means to pay for it, is much worse.

A free for all economy may not be sustainable. More safeguards will have to be introduced.

ejj

Why does the answer have to involve government Henry? How ridiculous. It comes back to labor & management, organizational structure, and globalization. Toyota, Nissan, Honda, Mercedes-Benz are all prospering in the US....gee I wonder why? Better labor & management, much better internal organizational structures, and a better understanding of the global marketplace.

I took a semester off from college and worked on an assembly line making car parts. I also worked in Detroit for a year and half. Detroit is a sh it hole. Working on an assembly line is nasty work. Someway somehow the foreign automakers have built factories in this country that hasn't resulted in the ghettoization of the communities around them - and you don't see them shuttering factory after factory.

I think GM & Chrysler need to merge and then the new merged company needs to go bankrupt - with Ford being the last man standing. If Ford can't make it in the sh it hole of Detroit, then I say good riddance to all of them. ...ejj...

GreenPlease

all 3 merge, all 3 tell UAW to take a hike. Offer workers $20/hour no benefits. Slash a couple brands, ditch the crappy platforms, build a PHEV architecture that can be used accroos multiple product lines. Maybe they'll have a chance.

Treehugger

GreenPlease

Easier said than done, you know the Big 3 really surfed on the wave of cheap gas that lasted through the 1986 to 2004 period, that were time were american people started to think thaat it was no longer necessary to save money (the average saving in US who used to be 10% went down to zero starting in 1990) time during which the trend was : borrow today we will pay tomorrow because we will be richer tomorrow, the feeling was : America is so strong, we made Russia bite the dust, rigth ? we are so rich we can borrow without limit, credit card lifestyle stimulates the growth of the economy, right ? well yes...up to the point where you can no longer borrow more because the lenders start to seriously doubt that you will be able to repay your debt, here is where America stands today, a colossus with sand feets. The young generation who grew up with the credit cards minded attitude will need to have 3 jobs just to repay this debt not to mention that there will be other collapse ahead like the medicare or the healthcare system.

The french revolution happened because France was so in debt that people were crushed by the taxes, the second world war happend because Germans had lost everything in the hyper inflation that followed the 1929 crisis. We can seriously worry about what this financial crisis, as well as the unprecedented cumulated level of domestic debt in US, can yield in the medium long term.

greenplease

GreenPlease,

Please explain why it is good for America for 500,000 workers to take a 70% pay cut and make cars for you.

We got into this mess together. We should get out of it together.

The autoworkers should do their part, but it isn't even 1/3 due to their refusal to compromise. They never got to choose what to build, and they didn't decide to pay 5% dividends to the Ford Family and GM shareholders rather than invest in technology. The workers have already signed off on cutting their workforce by 70-80% over the last 30 years. They will have to give more, but it's no answer to make them poor.

John Taylor

I think that a GM, Chrysler merger would be a seriously bad idea for lots of reasons.

However, If Obama gets elected, he has promised to fund the development of new American cars that are energy efficient and worthy of the future.

My suggestion to him is that he fund ONE and only one BEV platform to be shared by all big American Automakers. They would each be required to make their technology and patents available, and to make the cars compatible with a national recharging grid.

Later models could diverge, but still meet the infrastructure compatibility.

DS

@Henry Gibson
You're got your head so far up the tailpipe of your Detroit built car, that you can see the catalytic converter.

GreenPlease

I'll add that I don't have any sympathy for executives in Detroit. Their numbers should be halved and, as a contingency of getting a government load, their salary should be capped to that of a high level civil servant (e.g. president).

When I refer to the UAW, I mean the healthcare/retirement benefits that GM has to pay out to retired employees. If Toyota pays their employees $20/hour there is no reason GM shouldn't be allowed to do the same. Increasing automation will cut the worker out anyways....

Nothing wrong with paying a dividend. Dividends actually tend to attract the right type of investors: those that are in it for the long haul.

I'd blame most of Detroit's ails on a corporate culture that couldn't get its head around Peak Oil.

Completely agree that the BEV should be a Manhattan type project at first: government funded, standardized and MASS produced. Allow divergence from there but keep some sort of standard for battery pack size/shape/form/voltage to allow swapping/upgrading in the future without heinous cost.

Andy

"Toyota, Nissan, Honda, Mercedes-Benz are all prospering in the US....gee I wonder why? Better labor & management, much better internal organizational structures, and a better understanding of the global marketplace."

There were definitely some really short-sighted decisions by the Big 3, but it isn't entirely that easy. GM and Ford are doing quite well overseas. Likewise, the Japanese and Korean auto companies enjoy significant protection from international competition in their home markets. For the Japanese firms in particular there has also been a huge ongoing export subsidy via their undervalued currency. In addition, all of the foreign-based firms operating in the U.S. have enjoyed lower benefits costs for their U.S. operations because they haven't been here as long so their workers hadn't had enough time to get old and frail. The U.S. unions certainly played their role as well.

DC

More likely Renault/Nissan, more to be gained.

Bryan

the UAW has done no favors for the employees that are now completely dependent on their artificially inflated wages

@John Taylor, GreenPlease,

... that he fund ONE and only one BEV platform to be shared by all big American Automakers.

Are you sure that this proposal is not against WTO rules?

Foreign automakers would almost certainly cry foul play.
US negotiating position, as heavily indebted nation and the epicenter of the financial crisis, is becoming weaker week after week.

MG

The previous post was mine.

GreenPlease

Let them cry foul. They don't play fair so there is no reason we should have to.

GreenPlease

BTW the WTO should be mindful of what the implications would be if the U.S. is allowed to continue its present downward sprial. If the U.S. is bankrupt many other countries will also be hurt and I wouldn't be surprised if a World War broke out.

Many countries should be afraid of the U.S.' military capabilities. If it weren't for these BS rules designed to protect "collateral damage" wars with us wouldn't even be close. We could have leveled Iraq, Iran, and Afghanistan in a manner of weeks if we didn't worry about civilian casualties and we could have done this with conventional weapons and essentially zero casualties.

ejj

@greenplease:

A world war will not break out until people are in dire straits: out in the streets, living in boxes, soup lines, etc. As long as people still have jobs, homes, cars, and $$$ for recreation (movies, dining out) around the world, war won't break out -- it would still be for other reasons like Iran wanting to wipe Israel off the map. If Iran did launch a nuclear weapon at Israel, as GW said - there would be 350+ million Americans on the side of Israel rallying to its defense. Tehran at a minimum would be vaporized. I would be willing to join the US military to fight for Israel.

GreenPlease

I'll second that ejj.

HarveyD

@ John Taylor:

Not so sure that a single USA BEV or PHEV platform could meet the requirements of 200+ million Americans.

That being said, early development of standardized ESSU (battery pack) modules, on-board chargers, connectors etc should be accellerated. It is of the utmost importance to have plug-in modular battery packs. Buyers should have the choice to buy PHEVs and BEVs with has many or as few battery packs (modules) as they need and can afford. Why buy a BEV or PHEV with 20 or 40 KWh ESSU if 10 Kwh suits you.

Being able to add extra ESSU modules latter, when the price is lower, would lower the inital purchase cost and promote sales.

Treehugger

eji

This is not the place here to express your sympathy for Israel (who doesn't deserve it by the way) and your hate for Iran. This a site for technical discussion not political.

thanks

ejj

@tree:

First of all, I don't hate Iran...but if they nuke Israel, I will be one of the first to volunteer for action in the US military as part of a retaliatory strike - and hopefully Tehran and most of Iran's military bases will be vaporized by then. Second, I support the freedom of speech of this site and respect the diversity of views found throughout this forum including your own.

ejj

Here's a great article on this subject:


Dumb, Dumber and Hummer
http://www.forbes.com/2008/10/12/gm-ford-chrysler-biz-cx_jf_1012flint.html?feed=rss_news

Treehugger

Eji

Freedom of speech ? ok but the right speech in the right place, there is plenty of sites where you can express this sort of view, right ?

again this is a site for technical discussions, we have enough of Stas-Peterson and his politically biased opinions who regularly pollutes this site with his ultra-conservative views and his hate of California. No need to adds up on this.

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