Money Still A Problem in the GM – Chrysler Deal

Facing the global economic crisis is a difficult job even for a large company like Chrysler who may need the government's help to reduce the loses. However, talks regarding a potential merger between General Motors and Chrysler take shape but there's still one major impediment that could block the deal: money. According to Autonews, negotiations between GM Chief Operating Officer Fritz Henderson and Cerberus Capital Management, the majority owner of Chrysler, came to a dead end, mostly due to the fact that a full acquisition would cost a lot.

More importantly, Chrysler has $9 billion in debts, which, in case of an acquisition, have to be paid by the parent company, the aforementioned source added.

“Additionally, a cash-strapped GM needs between $4 billion and $5 billion for payouts for the estimated 30,000 to 40,000 jobs that would be cut through a merger and to close most of Chrysler's 14 assembly plants, the sources said,” Autonews reported.

General Motors is not the only company involved in negotiations, Autonews wrote, Renault-Nissan also being interested in buying Chrysler. However, talks between the French-Japanese venture and Cerberus stagnated so General Motors is currently favorite in the race for buying the US firm.

Chrysler's sales decreased in the last months by approximately 25 percent while General Motors' fell about 18 percent, the same source added.

“JP Morgan analyst Himanshu Patel said a GM-Chrysler merger would represent a "high-risk transaction," but could also position the combined automaker to extract more concessions from the UAW and secure new financing. The key, he said in a note for clients, would be if GM is seen as "saving Chrysler from insolvency.”