General Motors and privately-held Chrysler, two of the most iconic names in American industry, are in preliminary talks about a possible merger, according to reports in The New York Times and The Wall Street Journal.
The possibility of the two struggling automakers merging would be a historic move in a time of a hurting economy and tight credit markets.
According to the Times, talks between GM (GM: 4.89, +0.13, +2.73%) and Chrysler began nearly a month ago and talks will continue for several more weeks if they progress at all. The newspaper, citing anonymous sources, said a merger between Chrysler and GM was “50/50” as of Friday evening.
Private equity firm Cerberus Capital Management owns Chrysler. Calls and e-mails into GM and Cerberus were not immediately returned.
The Journal reported that Cerberus proposed selling GM all of Chrysler's automotive operations, in exchange for GM selling Cerberus its remaining 49% stake in GMAC.
There are a multitude of logistical, legal and financial hurtles that a merger between two of Detroit’s Big Three would have to go through for a merger to make financial sense.
Labor unions for both companies would have to sign off on the merger, possibly similar to the recent mergers between major airlines. There also the dozens of car and truck factories scattered across the nation and the world that would have to be consolidated.
According to the Journal, GM believes they could save as much as $10 billion in costs with a merger with Chrysler.
GM’s stock fell to nearly a 60-year low this week after rating agency Standard & Poor’s said it was looking into downgrading GM’s long term debt rating. With the credit markets in such bad shape as they are, and GM’s debt rating poor already, a rating downgrade would be quite detrimental to the survival of GM.
Chrysler has had to shut factories in recent months because of a lack of demand for the car company’s trucks and minivans. The company has been shopping itself to a few different global auto makers for the past few months, including Nissan and Renault.
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