Friday, October 24, 2008

Part 2-GM, Cerberus step up Chrysler sale talks: sources

Both parties remain interested in reaching a deal, but GM is working to clarify Chrysler's pension liabilities and the risk the automaker's suppliers could face from a merger, the sources said.

Analysts and others close to the talks have suggested that 30 percent of Chrysler's current suppliers could be at risk if GM completed an acquisition and worked to cut Chrysler's slower-selling and weaker models.

In addition, GM is considering contingency plans in case the Cerberus talks failed to produce a deal, sources said.

Those alternative scenarios include approaching an outside investor and asking the government for stepped-up assistance of some kind, one person briefed on the talks said. GM has lost more than $50 billion in the last three years.

With auto sales slowing sharply in Western Europe and on track to drop to 18-year lows in the United States this month, GM is under increasing pressure to slow a cash burn rate that stood at $3.6 billion in the second quarter and is expected to have accelerated since.

A major motivation for GM in acquiring Chrysler has been access to the smaller automaker's remaining cash, sources have said. Chrysler lost about $1 billion in the first half of the year and ended June with $11.7 billion.


Chrysler has been hit hardest by the slump in the U.S. market with its sales dropping 25 percent to date. GM's sales have dropped 18 percent.

Partly for that reason, analysts have challenged the logic of a merger, arguing that the struggling automakers are saddled with many of the same problems, including a surplus of workers, plants, brands and dealers. Continued...

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