For General Motors to acquire Chrysler and all of its warts, GM would have to get desperately needed cash. Lots of it, according to industry analysts.
With both automakers struggling to survive amid slumping sales, a slowing global economy and an unprecedented credit crunch, it's unclear whether Chrysler's majority owner, Cerberus Capital Management, would be willing to pay up, or whether the federal government might even get involved to save one or both struggling automakers.
GM and Cerberus, which owns 80.1 percent of Chrysler, have held preliminary talks about an acquisition or other combination of the two automakers, according to a person familiar with the discussions who did not want to be identified because the talks have not been made public.
A tie-up between the automotive giants would be historic for the industry and solidify GM's position as the global sales leader, which it has been in danger of losing to Toyota. GM and Toyota finished 2007 essentially even in vehicles sold worldwide.
Neither GM nor Chrysler would confirm that they've talked, but each said discussions between automakers are routine.
There also were reports Saturday that Chrysler was in talks with Nissan-Renault and that GM had approached Ford about a merger earlier in the year but Ford wanted to stay independent.
GM and Chrysler already have a joint venture with BMW making a hybrid gas-electric powertrain. While melding the companies could save money by combining management, engineering, manufacturing and administrative staffs, analysts say consolidation would bring more costs, and the rewards probably wouldn't come for several years.
That might be too late for both automakers.
Chrysler, a privately held company, doesn't have to open its books, but it lost at least $510 million in the first quarter and $1.6 billion last year. Sales are down 25 percent this year, the worst drop of any major automaker.
GM is burning up more than $1 billion in cash per month, with analysts predicting it will reach its minimum operating cash level of $14 billion next year. Sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, largely because of tax accounting changes.
All of this comes as U.S. sales have slowed to their lowest point in 15 years, making bankruptcy possible for all of the Detroit Three if things don't turn around soon enough.
Not exactly the prime scenario for a GM-Chrysler combination, said analyst Kevin Tynan of New York-based Argus Research.
“Even though you're getting the rationalization of folding the two businesses together, it doesn't make sense at this time,” he said. “There's got to be some sort of outside motivation for them to do that sort of deal, especially in this market.”
That outside motive, analysts speculated, could be the federal government, which would inherit massive pension liabilities if either company went under.
In exchange for taking on Chrysler, analysts envisioned that GM could be given access to low-rate emergency borrowing from the Federal Reserve's discount window, used in normal times by banks.
GM, though, said it is not going to the Fed at present.
The Wall Street Journal reported late Friday that Cerberus might trade Chrysler for GM's 49 percent stake in GMAC Financial Services. Cerberus bought 51 percent of GM's former financial arm for $14 billion in 2006, but since then GMAC has suffered because of bad mortgage loans.
GMAC could look good to Cerberus now, said Erich Merkle, an auto industry analyst with Crowe Horwath, an accounting and consulting firm, because its insurance and auto businesses are profitable, and the federal government may take on its bad mortgages through the $700 billion financial bailout plan approved earlier this month.