Speculation continued to swirl today 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 has increased recently. 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.
A merger of the two companies would give the combined firm about 36% of the auto market and plants across North America. In Canada, the two companies employ about 30,000 people—20,000 at GM and 10,000 at Chrysler—and have assembly and parts plants across southern Ontario.
Both companies have been restructuring their North American operations and cutting jobs to deal with a decline in their markets. In Canada, GM plans to close a truck plant in Oshawa next September and a Windsor transmission plant in 2010. Chrysler is cutting jobs at its plants as well, but is keeping them open.
In August, Chrysler LLC said it had accumulated US$11.7 billion in cash and marketable securities as of June 30. That figure remains around $11 billion, according to AP’s source, despite the automaker’s U.S. sales being down 25% in the year through September, the largest decline of any major automaker.
GM is burning through 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%, and the company has lost $57.5 billion in the past 18 months, although much of that comes from non-cash tax accounting changes.
Chrysler’s money pile would help solve GM’s cash problem if credit remains unavailable.
The deal being discussed calls for Cerberus to hand over Chrysler in exchange for GM’s 49% stake in GMAC Financial Services. GM sold a 51% 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.
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.
