General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the US auto industry.
The talks between GM and Cerberus Capital Management, the private equity firm that owns Chrysler, began more than a month ago but the negotiations are not certain to produce a deal, the New York Times reported today.
It quoted two people "close to the process" as saying the chances of a merger were "50-50" as of yesterday and would most likely still take weeks to work out.
A merger, the paper said, 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 in-roads into the US market, the paper noted.
The auto industry, the Times said, is being pummelled from all sides by high gas prices that have soured consumers on profitable SUV's, 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 from over $42 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 Times quoted people familiar with the discussions as saying the meetings between General Motors and Cerberus began more than a month ago and the companies have held several talks involving their most senior executives. Given that both GM and Chrysler are struggling, the two sides may determine a merger may not be in their best interests, it said.
The exploratory talks have included debates over various calculations of the savings that would result from a merger, these people said, but neither side has yet to dig into each others' private financial books and records.
At the same time, Cerberus is continuing to hold talks with other automakers including Nissan and Renault, said people familiar with the discussions. It is unclear at what stage those discussions have reached.
