General Motors Corp is in preliminary talks with Cerberus Capital Management LP's Chrysler LLC about a possible merger or other partnership, a person familiar with the talks said.
The talks are in a very early stage and it’s not clear whether they will result in any agreement, the person said, and asked not to be named because the discussions were private.
The New York Times reported the talks yesterday and said Cerberus was also holding talks with automakers including Nissan Motor Co and Renault SA, citing unidentified people.
Cerberus spokesman Peter Duda did not return phone calls. Chrysler spokeswoman Shawn Morgan had no immediate comment. GM spokesman Tony Cervone also had no comment.
GM, which hasn’t made money since 2004, and Chrysler, which has said it won’t be profitable this year, are under pressure to cut costs and increase liquidity as US auto sales have fallen to the lowest since 1991 and the credit crunch, touched off by the bankruptcy of Lehman Brothers Holding Holdings Inc, is making it harder for customers and dealers to get loans.
Cerberus said last month that it was trying to buy the 19.9 per cent of Chrysler that is still owned by Daimler AG. Chrysler LLC said on September 25 it would fire about 250 employees as part of a plan to eliminate 1,000 salaried positions by the end of last month.
Daimler wrote down the value of its Chrysler stake from ¤916 million at the end of 2007 to ¤171 million at the end of June as the automaker's fortunes declined.
Chrysler, which isn’t required to report financial information, has said it won’t be profitable in 2008. The company said that through June, it earned $1.1 billion before interest, taxes, depreciation and amortisation.
Credit Squeeze
Standard & Poor's analyst Robert Schulz said yesterday that GM, Ford Motor Co and Chrysler may be forced into bankruptcy as the global credit freeze damps US sales.
“Macro factors could overwhelm them at some point” even as GM, Ford and Chrysler vow to stick with their turnaround plans, Schulz, S&P's lead automotive credit analyst, said yesterday in a Bloomberg Television interview in New York. The companies said they have no plans to seek bankruptcy protection.
With all three companies working to boost cash, any bankruptcy filing would be a last resort, not a “strategic” decision, Schulz said.
“We don't see that as something they would choose,” he said. Schulz said the “trigger” for a forced restructuring under bankruptcy protection would be based on the automakers’ ability to preserve liquidity as sales decline. Industry-wide US sales slid 27 per cent last month, the most in 17 years.
Ford asked Japanese companies to buy most of its holding in Mazda Motor Corp, state-run broadcaster NHK said today in Japan.
Mazda Stake
The US automaker, which owns 33.4 per cent of Mazda, plans to sell about 20 per cent of the Japanese automaker to raise ¥100 billion ($1 billion), NHK said, citing people involved in the negotiations. Mazda may want to buy back its own shares and Ford will remain a major shareholder in the automaker, it said.
GM rose 13 cents, or 2.7 per cent, to $4.89 in New York Stock Exchange composite trading, its first advance since September 30. Ford dropped 9 cents, or 4.3 per cent, to $1.99, its lowest since October 5, 1982. Chrysler is closely held.
Operating-cash needs at GM, Ford and Chrysler are “substantial, so if it looked like they were going to be pushing toward that number because of these operating losses and cash usage, that’s sort of the point where they’d have to consider” bankruptcy, Schulz said.
‘Serious Challenge’
S&P said its debt ratings for GM and Ford, already at six steps below investment grade at B-, may be lowered again because the automakers faced a “serious challenge” in 2009.
Barclays Capital reduced its target stock price for GM to $4 today, with analyst Brian Johnson in Chicago citing dwindling global auto demand.
“With auto sales stalled in the US and beginning to contract in the rest of the world, we believe GM’s cash needs are increasing,” Johnson wrote yesterday in a note. “Moreover, the downside risk of greater decline in worldwide auto sales driving greater cash needs is increasing.”
