The latest obstacle to GM’s purchase of Chrysler: the tight credit market, which has once again reared its ugly head. It seems lenders aren’t so willing to finance a merger between two underperforming U.S. automakers. Huh? Who’d have thunk it?
WSJ: General Motors Corp.’s hopes of buying longtime rival Chrysler LLC are floundering because the auto maker remains unable to secure the financing necessary for the deal, say people familiar with the matter.
In recent days GM, its lenders, and Chrysler owner Cerberus Capital Management, have been trying to woo investors with a pitch about the transaction. That pitch touts a combined GM-Chrysler as delivering cost savings of up to $10 billion, an immediate boost in revenue and an increase in cash available to the merged firm. Outside money is needed to fund the cost-cutting — especially buyouts and severance packages for tens of thousands of hourly and salaried employees. Those cuts could total as much as 40,000 jobs if a deal comes together, said people briefed on the talks. And GM is already burning more than $1 billion in cash each month…
The United Auto Workers union has publicly questioned the deal but privately is studying its merits. GM is pitching the combination as a way to better ensure the continued funding of hundreds of thousands of UAW retiree pensions and health-care benefits. A new company would produce upward of $250 billion in annual revenue, while owning more than 30% of the U.S. market. It would also house an estimated $30 billion in cash, thus improving the company’s credit rating and lowering the risk that either GM or Chrysler would have to seek bankruptcy protection over the next 15 months.
But not to worry, GM and Cerberus have a back-up plan: letting the federal government take a stake in their new company, because apparently government investments are available to everyone now.
But several of the potential lenders remain unconvinced. Credit markets remain extremely tight, and a number of lenders are fearful of the complexity and scale of combining two industrial giants amid an economic downturn. If investors continue to shun the deal, its proponents could take their case to the U.S. government, arguing that a merger is vital to the survival of the nation’s domestic auto industry. It is unclear at this point what role, if any, Washington might be willing to play. But GM, Cerberus and its banks aren’t ruling out selling a stake in the new company to the federal government.
Still some Chrysler and GM employees must be happy there’s no merger agreement yet, as a combination would surely mean the cutting of tens of thousands of jobs at both companies, perhaps 66,000 at Chrysler alone.
WSJ: A merger of General Motors Corp. and Chrysler LLC would land a heavy economic blow on Michigan, a state already battered by waves of home foreclosures and the loss of tens of thousands of auto-industry jobs over the last few years.
GM is negotiating a potential deal with Chrysler’s majority owner, Cerberus Capital Management LP, hoping it can reap billions of dollars in cost savings by shutting down overlapping operations. Analysts estimate more than half of Chrysler’s 66,000 employees would lose their jobs in a merger. Thousands more would be affected at GM and at suppliers and service companies that rely on work with Chrysler…
This could be particularly tough on Michigan, whose local economy has been hurt by auto industry cutbacks.
Michigan has borne the brunt of the auto industry’s massive payroll cuts. Since 2005, GM, Chrysler and Ford Motor Co. have cut more than 100,000 jobs across the U.S., pushing the Detroit area into one of the highest foreclosure rates in the country. The economy has turned so dire that the U.S. State Department recently cut back on the placement of Iraqi refugees in Michigan.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.