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Chrysler, GM revive merger talks, paper says

General Motors and Chrysler have reopened merger talks, The Wall Street Journal reported Thursday, citing people familiar with the discussions.
/ Source: news services

General Motors and Chrysler have reopened merger talks, with Chrysler's private owners signaling a willingness to give away part of its stake in the automaker, The Wall Street Journal reported Thursday, citing people familiar with the discussions.

GM spokesman Tony Cervone said GM's stance on the merger talks has not changed, however, since the automaker suspended them when it announced third-quarter earnings in November.

With cash running low at both companies, Chrysler majority owner Cerberus Capital Management took the initiative to restart discussions that sputtered just weeks ago, the paper said.

The renewal of the talks could be a way for Cerberus to show Washington, which is weighing a $14 billion rescue package for the auto industry, that it wants to cooperate in restructuring the industry, the paper said, citing people familiar with the buyout firm’s thinking. An auto-industry bailout was rejected by the Senate last week, and now the Bush administration has suggested it will extend a helping hand to prevent the industry from collapsing.

But the White House has not specified how or when it might help.

Merger talks between GM and Chrysler were suspended in early November after GM warned that it could run out of cash in early 2009 and announced it had to refocus its attention on its "immediate liquidity challenges." GM lobbied heavily for the congressional bailout package, with CEO Rick Wagoner making two trips to Capitol Hill along with his industry colleagues from Chrysler and Ford.

A merger with GM could offer Cerberus a way to protect its stakes in two distressed auto-finance companies, GMAC LLC and Chrysler Financial, which are crucial to the survival of the  automakers, according to the Journal.

In the revived merger talks, Cerberus is considering giving away an ownership stake in Chrysler, possibly for distribution by a future government auto czar to the United Auto Workers union or GM, the Journal said.

The equity stake is considered virtually worthless but could be seen as a contribution to the restructuring of the troubled industry.

Chrysler could not be immediately reached for comment.

In a sign of just how deeply sales have slumped, Chrysler said Wednesday it is closing all 30 of its manufacturing plants for a month starting Friday, extending the traditional two-week holiday shutdown period.

Chrysler said tighter credit markets are keeping would-be buyers away from its showrooms and preventing dealers from closing sales.

With the U.S. sales slump expected to continue into January, traditionally one of the slowest sales months of the year, the company has little revenue coming in and must pay suppliers $7 billion every 45 days.