Video: GM-Chrysler deal?

updated 10/20/2008 2:06:49 PM ET 2008-10-20T18:06:49

Speculation continued to swirl Monday that a deal for General Motors Corp. to buy Chrysler LLC from New York private equity firm Cerberus Capital Management LP could come soon.

Both sides have been talking for months, but the pace recently has increased. A person familiar with the negotiations told The Associated Press Friday that officials were trying to work out a deal by the end of the month.

Cerberus wants out of the auto business. And as the credit markets have dried up, GM, worried about running too low on cash before the U.S. auto market rebounds, wants Chrysler's currency stockpile.

The person said that the talks have advanced to the point where top executives of both companies have looked at a deal and asked for refinements. The person spoke on condition of anonymity because the talks are secret.

In August, Chrysler said it had accumulated $11.7 billion in cash and marketable securities as of June 30. That figure remains around $11 billion, the person said, despite the Auburn Hills, Michigan-based automaker's U.S. sales being down 25 percent in the year through September, the largest decline of any major automaker.

Detroit-based GM is burning up more than $1 billion per month, with several analysts predicting it will reach its minimum operating cash level of $14 billion sometime next year. GM's sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, although much of that comes from noncash tax accounting changes.

Chrysler's money pile would help solve GM's cash problem if credit remains unavailable.

Both automakers have had to deny bankruptcy rumors in recent weeks, saying consumers won't buy cars from a company that looks like it could go out of business.

According to the person familiar with the negotiations, the deal being discussed calls for Cerberus to hand over Chrysler in exchange for GM's 49 percent stake in GMAC Financial Services. GM sold a 51 percent stake in its finance arm to Cerberus in 2006.

Cerberus also would get an equity stake in GM, hoping to get a good return should GM recover when U.S. auto sales bounce back from a serious slump.

Other automakers, including the allied companies of Renault SA and Nissan Motor Co., also are in discussions about Chrysler, the person said. Simultaneously, Cerberus, which bought 80.1 percent of Chrysler from Daimler AG in a $7.4 billion deal last year, is negotiating to acquire Daimler's 19.9 percent stake.

GM and Cerberus are still a long way from a deal, according to the person, and GM's board reportedly is cool to the idea.

All that GM, Chrysler and Cerberus have said about the negotiations is that automakers meet all the time. Chrysler Chief Executive Bob Nardelli said Thursday the auto sales drop has created an environment that favors consolidation.

Meanwhile, GM has told local union officials at two factories that make its hotter-selling small and midsize cars that it will not allow any more unscheduled overtime, a move seen as a way to further cut costs.

GM is burning through about $1 billion in cash per month and has promised to raise $10 billion through cost cuts and another $5 billion through asset sales and borrowing as it tries to outlast a U.S. auto sales slump that could run into 2010.

Union officials at factories in Orion Township, Mich., which makes the Chevrolet Malibu and Pontiac G6 midsize cars, and Lordstown, Ohio, where GM makes the Chevrolet Cobalt and Pontiac G5, each said they were told of the overtime ban Friday.

The officials did not know if the ban affected just their plants or if it was companywide.

GM spokesman Tony Sapienza said Monday that the company has not announced any ban on unscheduled overtime, but it is looking at ways to conserve cash.

"Officially we haven't told employees anything," he said. "As we weather very difficult economic conditions, we're looking at a variety of ways to be as efficient as possible while balancing the needs of the market for our products."

Unscheduled overtime generally is used when a worker calls in sick. An employee who is on duty at the time usually works half the shift for the sick employee, and another worker is called in early to work the other half.

The union officials were unsure how the company would fill assembly line positions for those who are ill.

Jim Graham, president of UAW Local 1112 in Lordstown, said GM probably will have to make an exception at his plant because its small cars are selling.

"We will have to. We need the cars," he said.

Through September, Cobalt sales were up 6.3 percent and G5 sales rose 1.7 percent, even though overall U.S. light vehicle sales were down 13 percent compared with the first nine months of 2007. Malibu sales are up 51 percent, while G6 sales have risen 8.4 percent, according to Autodata Corp.

GM's sales through September are down 18 percent, and industry analysts are predicting that October could be worse than September, which had the lowest overall U.S. sales level in more than 15 years. Dealers have reported that higher credit standards on the part of many lenders, as well as economic uncertainty, have kept many buyers away from showrooms in October.

Several analysts predict that Detroit-based GM will burn up so much cash that it will reach its minimum operating cash level of $14 billion sometime next year. The company has lost $57.5 billion in the past 18 months, although much of that comes from noncash tax accounting changes.

Last week, GM said it would eliminate around 2,700 jobs by shuttering a metal stamping factory in the Grand Rapids suburb of Wyoming by the end of next year and speeding up the closure of its Janesville, Wis., sport utility vehicle plant, with most of that facility closing Dec. 23.

The company also announced that it would cut production at plants in Detroit, Pontiac and Wilmington, Del., putting another 1,600 workers on indefinite layoff.

Analysts say with the slow sales, it's likely GM will announce further production cuts and possibly more plant closures.

GM and Chrysler LLC's owner, Cerberus Capital Management LP, are discussing the possibility of GM acquiring Chrysler. GM's motivation, according to a person with knowledge of the talks, is that Chrysler has about $11 billion in cash that GM could use to stay afloat if the credit markets remain tight.

GM and Chrysler have said automakers talk all the time, but they won't comment specifically on the talks.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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