The outlook for a deal between General Motors and Chrysler appeared unclear, as conflicting reports surfaced Monday. þþThe negotiations involving Cerberus Capital Management, Chrysler’s private equity owner, have intensified in recent days and are moving closer toward a conclusion, Reuters reported Monday, citing people briefed on the talks who asked not to be identified.þþThe Wall Street Journal, however, said that plans for G.M. to buy Chrysler were floundering because the auto maker remains unable to secure the financing necessary for the deal. Citing people involved in the talks, The Journal called the discussions “tenuous”, as potential lenders were war of ponying up for such a complex deal amid tight credit markets.þþThe prospect of merging Chrysler and G.M. has been viewed as a deal of desperation by most analysts since both automakers are losing money and are saddled with a cash-draining surplus of American dealers, workers and plants.þþBut G.M. executives believes the automaker could clinch a deal that would give it a share of Chrysler’s remaining cash while allowing it to cut costs quickly, Reuters said, citing sources.þþAlthough it does not report financial information, Cerberus has said Chrysler ended June with $11.7 billion.þþChrysler has 14 assembly plants and the expectation is that many of those would be in danger of being shut if it merges.þþOnce the deal closes, G.M. is only interested in keeping Chrysler plants where the No. 3 U.S. automaker has made significant investments in retooling, according to Reuters.þþThat could include Chrysler’s truck plant in Saltillo, Mexico, the Jefferson North Jeep plant in Detroit and its Belvidere, Illinois car assembly plant, one source briefed on the talks told the news service. þþBut such a deal would involve the loss of thousands of jobs, deepening a slump in rust-belt states like Michigan and Ohio that has been a key issue for both presidential candidates.þþIt would also mean the end of Detroit’s “Big Three,” sending the curtain down on Chrysler after a turbulent 80-year run that saw it lurch from booms to busts and back while setting smart designs with products like the first minivans and the 300 sedan.þþ“This would basically mean the end of Chrysler,” Global Insight analyst Aaron Bragman told Reuters.þþReuters said it was not clear how Chrysler’s obligations to a health-care trust affiliated with the United Auto Workers union or how Chrysler creditors representing $9 billion in debt would be treated under a merger with G.M.þþReuters, citing sources familiar with the thinking of Cerberus, said the private equity firm wants to keep a stake in any merger of Chrysler with another automaker.þþThe Journal, however, reported that as of Sunday, the two sides had yet to even agree on how the transaction would be structured.þþBoth Cerberus and G.M. have been hit by the growing pressure on credit markets in recent weeks.þþDetroit-based GMAC, now 51-percent owned by Cerberus, has seen its access to funds pressured by the financial market turmoil and has sharply restricted loans to G.M. car buyers.þþRecent trading in G.M. bonds suggests that its cost of funds would be above a punitive 20 percent, analysts have said.þþWith new borrowing off the table, G.M. has shifted its attention to getting a fast share of $25 billion in recently approved, taxpayer-backed loans from the U.S. government and the Chrysler deal, Reuters said, citing people familiar with the talks.þþG.M. burned through $3.6 billion in cash in the second quarter and is expected to show an even faster rate of cash burn in the current quarter as auto sales slumped further and it recorded charges to cut some 5,000 salaried jobs.þþG.M. ended the second-quarter with $21 billion in cash and has said it needs to maintain $11 billion and $14 billion.þþAnalysts say it is not clear how much of that would be left for G.M. after payouts to cut unionized factory jobs and to dealerships the merged company would no longer need.þþU.S. auto dealerships are independent businesses protected by franchise laws. G.M. spent an estimated $2 billion to shut down its Oldsmobile brand in 2000.þþ“How much of the Chrysler cash is left remains to be seen,” Global Insight’s Mr. Bragman told Reuters. “A good chunk would have to go toward closing hundreds if not thousands of dealers.”þþG.M. has about 6,550 stores for its eight brands, the most of any automaker. Chrysler started the year with just over 3,500 dealerships but has been looking to reduce that number and shift more of its retail outlets to dealerships that carry all three of its brands: Chrysler, Jeep and Dodge.þþChrysler sales are down 25 percent and GM sales are down 18 percent through September, a decline coupled with tighter credit that has caused deep losses for many dealers.þþThe degree of opposition from G.M.’s unions in Canada and the United States to a Chrysler acquisition is another wild card.þþEven after a recent buyouts, G.M. has 64,000 hourly workers in the United States, almost all represented by the United Auto Workers union. Chrysler has 33,000.þþWhen Daimler opted to sell Chrysler in February 2007, it had first approached G.M., seeing the top U.S. automaker as the strongest potential buyer. But G.M. executives balked at a deal then because of concern about provoking the union with deep job cuts ahead of a recent round of contract talks, Reuters said, citing a person familiar with those negotiations.þþ
Source: NY Times
