Chrysler considers merger options

October 12, 2008
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, DETROIT, october 12 – US automaker Chrysler considered several new partnership options Sunday, including mergers with Renault-Nissan and General Motors, industry and union officials said.

Two sources, one an executive at a rival company and another a key official from the United Auto Workers, said talk of merger of Chrysler with Renault-Nissan had been alive for a week.

"I think that might make some sense. You would combine Asia, Europe and the US in one company," noted the union official who asked not to be identified.

"I don\’t see what the advantage would be in combining Chrysler and GM since they\’re both so heavy into trucks," the official added.

Meanwhile, officials from both Chrysler and GM confirmed the two companies had been holding talks.

"As we have said, the company is looking at a number of potential global partnerships as it explores growth opportunities around the world," said Chrysler spokeswoman Lori McTavish.

She noted that Chrysler entered into a partnership with Nissan earlier this year to build trucks for the Japanese automaker.

Last month, it began building minivans for Volkswagen North America. VW is already marketing the Chrysler-built minivans in North America.

"Beyond those partnerships already announced, however, Chrysler has not formed any new agreements and has no further announcements to make at this time," McTavish said.

Tony Cervone, GM vice president of communications for North America, said GM was not going to comment on any discussion with Chrysler.

"Without referencing this specific rumor, as we\’ve often said, GM officials routinely discuss issues of mutual interest with other automakers," said Cervone.

The sheer cost of developing new, more fuel-efficient vehicles is driving companies together, observed another executive, who noted that GM has already collaborated with Ford on building new transmissions and has worked with Chrysler and BMW in developing hybrid vehicles, noted one GM executive.

The gloomy outlook for the US auto industry was already a key driver behind talks before they were sidelined by the upheaval in the world\’s credit markets.

Jim Press, Chrysler vice chairman, said recently he did not think car sales would begin to recover for another "year or year and a half."

"Falling trade-in equity, fewer leasing options, credit market restructuring and the increased migration to used vehicles are all putting added pressure on the US new-vehicle sales market in 2009," according to a new report from J.D. Power & Associates, which now expects unit sales to drop to 13.2 million in the United States in 2009.

The value of GM\’s stock dropped 45 percent last week as investors such as Citibank reduced their holdings of the troubled automaker. Citibank cut its holdings to three percent from five percent on fears that GM would face a continuing drain on its resources as auto sales plunged.

A Chrysler official put the chances of a deal with GM at about "50-50." But a key UAW official said neither company had approached the UAW.

In June, Chrysler officials said the company would try to eliminate 1,000 salaried jobs through retirements and buyouts.

However, the company also warned that it might be forced to use "involuntary separations" if not enough salaried employees volunteered to leave.

Chrysler has eliminated 22,000 jobs since February 2007 and now has approximately 66,000 employees, including more than 8,000 in Auburn Hills, Michigan. It is planning to eliminate another 4,000 jobs during 2009.

Chrysler, as a private company, does not release quarterly financial information but GM lost 15.5 billion dollars (11.5 billion euros) in the second quarter and is expected to post additional losses when it posts its third quarter results at the end of October.

One major benefit of the merger for GM is that it would remain the world\’s largest automaker. Japan\’s Toyota Motor Corp. is poised to take over the crown at the end of the year but a merger would leave the crown in GM\’s hands.

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