WSJ Report Says Chrysler-GM Merger May Happen Within Weeks
This morning’s Wall Street Journal proves that the only thing constant in today’s tumultuous auto industry is, of course, change. Just two days after we reported that Chrysler and GM were likely to table merger discussions until after the market turmoil has passed, the Journal article says that GM and Cerberus have significantly stepped up the pace and depth of discussions regarding a merger. This is due to both GM’s critical cash situation and Cerberus’ interest in getting out of the car business. Lenders such as JP Morgan Chase, who have done business with the companies for years, are pushing for the deal in an effort to reduce their exposure to the auto industry.
According to the report, Cerberus would like to swap its Chrysler holdings for the 49% of GMAC that GM still owns (Cerberus, of course, owns the other 51% of GMAC). Cerberus also has interest in owning a stake in the combined GM-Chrysler entity. In other words, rather than waiting out the market turmoil before making a deal, that very turmoil has become the impetus for a deal.
For its part, some members of GM’s Board of Directors are not keen on the idea, but GM’s management has assigned teams of people to analyze Chrysler’s operations and estimate cost savings from a potential deal. GM projects that it could realize $10 billion in annual cost savings from a potential tie-up, plus get access to Chrysler’s $11 billion cash hoard to keep the lights on a bit longer.
Many industry analysts – and presumably the GM board members who aren’t convinced about the value of this idea – are calling this idea a Hail Mary play, one of desperation. Well, of course it is! GM’s back is completely against the wall, and absent a fairly dramatic, fairly fast market turnaround, the company is headed straight to a Chapter 11 bankruptcy reorganization.
Publicly, the UAW is opposed to the concept of a GM-Chrysler merger, because it will mean very severe job cuts on the Chrysler side, as well as potentially on the GM side as well, and unions ostensibly exist to protect employment. However, the Journal article also states that behind the scenes, the UAW’s leadership is less hostile to the concept, because they are aware of the precarious situation that the companies find themselves in. For the same reason the union approved the concessionary contracts in 2007 – an attempt to preserve the health, or some of the health, of the companies to ensure their viability going forward, the UAW’s leadership sees a GM-Chrysler merger as a least-worst sort of scenario.
Stay tuned to Full Metal Autos for the latest developments on this dramatic story.