GM/Chrysler Merger Could Happen by Halloween

Talk about Alice In Wonderland!

GM/Chrysler Merger Could Happen by Halloween
http://tinyurl.com/5soz73

Reports of the demise of merger talks between GM and Chrysler appear to
be greatly exaggerated. In fact, the New York Times reports that merger
negotiations have intensified. "With G.M. burning through cash and auto
sales sinking to historic lows, [GM CEO Rick] Wagoner is pushing hard
for a merger with Chrysler," the Times writes, adding that the push
"illustrates G.M.'s precarious state." General Motors, once the world's
largest automaker, has been struggling to raise cash in a down market,
and has been dogged by bankruptcy rumors for months.

But GM isn't the only one anxious for a deal. Thestreet.com reports
"Major banks, such as JPMorgan Chase that have long been lenders to both
companies also are eager to do a deal to help reduce exposure to the
auto industry," and that "Cerberus Capital, which owns Chrysler, is
looking to have a stake in a combined GM-Chrysler."

The Wall Street Journal thinks the deal could be done by Halloween. "GM
is set to report dismal third-quarter earnings in coming weeks," they
report, "And is scrambling to find new sources of funding, according to
people familiar with the matter. That's spurring the auto maker to
complete the deal as soon as the end of October."

While several industry analysts have panned the idea of a merger, not
everyone sees only downsides. Detroit News Columnist Ray Windecker
writes that while the merger may seem to be "two drunks leaning on each
other . . . what is missed is what happens when the less inebriated
drunk picks the pocket of his partner." He compares the merger to the
Studebaker/Packard merger of the 1950s. "Studebaker had a larger number
of dealers," he writes, "an interesting but overpriced collection of
smaller and sporty cars and a decent line of light and medium trucks.
Packard only had moderately updated luxury cars, but it did have cash."
In this case, "GM has the dealer and product advantages, while
Chrysler (through its majority owner Cerberus) has spare cash."

That might be Chrysler and GMs exact line of thinking. However, there
are still a number of hurdles to overcome. The two companies would have
to agree to put a number of models and brands on the chopping block, a
move that would surely irritate their dealer networks. Then there's the
dealer network itself, which would likely have to undergo some cuts.
Several unions are against the proposed merger as well, with one union
leader telling the Detroit Free Press that the merger would spell
"absolute catastrophe." In the event of a merger, both companies would
close plants and shed workers as they try to streamline the operation.
While acknowledging that the unions haven't talked to either GM or
Chrysler about the merger, The Free Press reports, "UAW President Ron
Gettelfinger said he would oppose any deal that would reduce the
workforce."

While the Big Two may be an accurate metaphor for Detroit's fortune's
right now, we'll keep you posted on all merger talks from the Big Three.
Check out how your favorite, possibly soon to be extinct, Chrysler and
GM models are doing in U.S. News' car rankings.

 

Yes, other reports say that Chrysler has almost 12 billion in cash and
marketable securities.

Can someone explain what the logic is in borrowing money just to get
your hands on a company with money in the bank? Isin't that a net
zero-sum game?

What if Chrysler had no money in the bank? Would it be worth $12
billion less than it is now? If so, would GM still be thinking of
buying it? Why not - it would cost $12 billion less?

 

Well, I hope it won't be TOO much like the
Studebaker-Packard merger, because those brands both
disappeared very soon afterward.