General Motors And Chrysler In Merger Talks

October 11, 2008 8:37 a.m. EST

New York, NY (AHN) - General Motors Corporation (GM) had preliminary talks to acquire or merge with Chrysler LLC as Detroit's big two automakers are struggling to raise capital and to shore up their financial statements amid dropping auto sales.

According to the people familiar with the matter and reports, the two car giants have been in talks for around a month, but there are no details on the type of merger or acquisition the companies have been discussing.

The number one manufacturer of automobiles, GM, and the third largest producer of vehicles, Chrysler, have been facing weak credit markets, high production cost and declining consumer spending in the US.

According to recent reports, the companies have also suffered due to a huge decline in the number of sales of automobiles as figures fell to 15-year low.

The US automobile industry showed that the sales declined by 27 per cent last month.

Cerberus Capital Management LP, which owns 80 per cent of Chrysler's total stake, has 51 per cent of controlling interests in GMAC, an auto lender.

Cerberus has reportedly proposed to give GM Chrysler's automotive operations and in return the later can give up its 49 per cent stake in GMAC, according to the reports.

In addition, Detroit's Big Three auto makers have been planning to restructure their plants to build hybrid vehicles, which may be launched by 2010.

Standard & Poor's senior automotive credit analyst, Robert Schulz, General Motors Corp. (NYSE: GM), Ford Motor Co. (NYSE: F), and Chrysler LLC are facing bankruptcy risk as global financial crisis deepens.

However the companies have denied the possibility of seeking bankruptcy protection as they plan to stick to their marketing and production strategies based on preserving liquidity on declining sales.