Hyundai, Chrysler in talks as GM pulls out

Hyundai, Chrysler in talks as GM pulls out
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November 8, 2008 - 12:01 am ET

DETROIT(Reuters) -- South Korea's Hyundai Motor Co. has had talks with
Chrysler LLC owner Cerberus Capital Management LP about a potential
acquisition of the U.S. automaker's Jeep brand and possibly other
assets, people with knowledge of the talks told Reuters.

The emergence of Korea's largest automaker as a potential bidder for at
least part of Chrysler comes a day after General Motors said it shelved
its own pursuit of an acquisition of its cross-town rival.

Cerberus also plans to restart talks with other potential partners for
Chrysler, including Renault-Nissan, the sources said.

Hyundai has expressed interest in Chrysler's Jeep brand, but Cerberus
would prefer to sell all of Chrysler rather than split off assets
through a series of deals that would break up the company, the sources said.

Cerberus, Chrysler and Hyundai declined to comment.

Jeep is considered Chrysler's most valuable asset. Although Chrysler has
been readying a step that would allow it to sell off Jeep and its
supporting parts business readily, any move to dispose of the brand
would signal the end of Chrysler as a stand-alone automaker, sources said.

The talks over the future of Chrysler are playing out just as the U.S.
auto industry makes its case to U.S. lawmakers for a rescue package for
GM, Ford Motor Co. and Chrysler at a time when all three are burning
cash faster than ever.

GM, which had been seen as the leading candidate to buy Chrysler, said
on Friday that it set aside its pursuit of the acquisition in order to
focus on preserving cash.

Bush administration officials last week rebuffed a request for some $10
billion for GM to fund its proposed merger with Chrysler in part, out of
concern for the tens of thousands of jobs that would be lost as a
result, sources have said.

One advantage of a Hyundai bid is that the Korean automaker would likely
opt to preserve more of Chrysler's U.S. operations, and hence keep more
jobs, the sources said.

That aspect of the deal could be important because Democratic lawmakers
who extended their majority in Congress in Tuesday's election have made
it clear that any federal rescue package would be aimed at preserving
U.S. manufacturing jobs.

The auto industry and its political allies, including the UAW, are
pressing for the current Congress to take up a proposal for another $50
billion low-cost loans for the cash-strapped sector later this month.

SAND "ALMOST' THROUGH THE HOURGLASS

Another source of pressure comes from Chrysler's dwindling cash, people
with knowledge of the situation have said.

Without new funding, Chrysler executives have raised concern about the
automaker's ability to finance its operations beyond the first half of
2009, according to the sources.

"Things are going to happen pretty fast now because the sand is almost
through the hourglass," said one person familiar with the talks.

U.S. sales of Chrysler, Jeep and Dodge brands were down almost 26
percent this year through October, and Chrysler's market share has
slipped to just 11 percent in October, putting it in an almost dead-heat
with Honda Motor Co. for the No. 4 spot in the U.S. market.

In a breakup of Chrysler, Nissan-Renault might consider buying the
automaker's Ram pickup truck production while Germany's Volkswagen is
seen as a possible buyer for Chrysler's minivan line, people close to
the talks said.

Hyundai, which has 3 percent of the U.S. market, has aspirations to be a
full-line auto manufacturer. Based on low pricing and an
attention-grabbing 10-year warranty, Hyundai saw sharp growth in U.S.
sales earlier this decade.

More recently, it has battled to change the public perception of its
brand. Hyundai launched its first luxury model this year and has
considered the idea of establishing its own luxury line, like Toyota
Motor Corp.'s Lexus.

But a recent round of talks between Hyundai and Ford Motor Co. over a
deal to sell Ford's Volvo brand to the Korean automaker sputtered out in
a dispute over the value of the brand, sources have said.

Hyundai also had a rocky relationship with DaimlerChrysler before
Germany's Daimler AG sold Chrysler to Cerberus in 2007. In 2004,
DaimlerChrysler announced it was selling its 10.5 percent stake in Hyundai.

Hyundai has its U.S. headquarters outside Los Angeles, a new
$1.1-billion plant in Alabama, and an engineering center near Detroit.
Its affiliate Kia Motors Corp. is building a plant in Alabama set to
open in 2009.

Hyundai ended the third quarter with 4.5 trillion won, equivalent to
about $3.5 billion at the current exchange rate.