GM-Chrysler merger depends on US election

A MERGER between Chrysler and General Motors, America’s largest car-maker, appears to depend on the outcome of the US presidential election today (November 4), following the refusal by the US Treasury Department to fund the deal – at least until the views of both presidential contenders are made clearer.

GM, which just posted a 45 per cent vehicle sales plunge in October to be 20.4 per cent down year-to-date, and Chrysler, which is owned by private equity firm Cerberus Capital Management, are understood to have been in discussions about a potential merger for a number of weeks.

It has been reported that GM has asked the Bush administration and Congress for a loan of about $US10 billion to fund both its struggling day-to-day operations and a potential merger with Chrysler.

The request comes on top of calls by GM and its allies in Congress for the Energy Department to expedite $US25 billion in loans to assist the US industry retool assembly plants to build more fuel-efficient vehicles, and on top of requests for the US automotive industry to be included in the $US700 billion federal bailout plan being administered by the US Treasury Department.

Democrat candidate Barack Obama said that, if elected, he would meet immediately with US car-makers and the United Auto Workers union, while Republican John McCain said he would “do whatever I think needs to be done to help out the auto industry”.

GM is believed to have lost $US18.7 billion in the first half of this year alone and has about $21 billion in cash remaining. Some reports claim that because it is losing more than $US1 billion per month GM could reach critical operation cash levels some time during 2009.

Chrysler is estimated to have about $US11 billion in (mostly borrowed) cash and some analysts believe it will face bankruptcy next year if it does not merge with another car-maker.

The number three US car-maker’s demise would bring about tens of thousands of job losses alone, but some estimates suggest that a GM-Chrysler merger could result in as many as 90,000 job losses, spelling billions of dollars in redundancy payments.

GM Production.

It is clear that any deal would lead to significant job losses because GM would seek to immediately eliminate duplication to save cash. Some reports have speculated that GM may only be interested in the Jeep brand and Chrysler’s people-mover models such as the Voyager.

Recent analysis by Grant Thornton LLP predicted a GM-Chrysler merger could close half of Chrysler's 14 US plants and result in the loss of 12,000 factory jobs, a further 12,000 white-collar workers and an additional 50,000 workers in the parts supply chain.

A different study by the Anderson Economic Group of East Lansing in Michigan estimated that 25,000 to 35,000 car company jobs would be affected by a GM-Chrysler deal, mostly in Michigan, but that many more jobs would go if Chrysler were to be sold in pieces.

The situation has reached crisis point not just in the board rooms at GM and Chrysler, but on the street. Citing far too much media attention, officials were forced to cancel an economic development group meeting to discuss ramifications of the proposed GM-Chrysler merger in Detroit last week.

Also last week, Kyodo News reported that GM chairman and chief executive Rick Wagoner is considering a visit to Japan to discuss his business’s turnaround and the possibility of an expanded business partnership with Toyota Motor Corporation, which has superseded GM as the world’s largest car-maker.

In line with its drastic cost-reduction plan, Automotive News also reported last week that GM has delayed nearly all product development investment in 2009 and 2010. AN reports that while nothing has been officially cancelled, the move includes cost-cutting in the areas of design, engineering and R&D, which could delay the release of vital new small models such as the Chevrolet Cruze, which is expected to replace Holden’s Astra in Australia.

Overlaying all this are disastrous new sales figures for October, which reveal US industry sales figures were down almost 32 per cent overall over the same month last year – putting the world's largest car market on target to set its worst sales result in 25 years.

Volvo led the decline last month with a 52 per cent sales slump, followed by Porsche (50% down), Suzuki (47%), GM (45%), Chrysler (35%), Hyundai (34.5%), Nissan (33%), Mazda (26%), Daimler (24.5%) and Toyota (23%).

GM's 170,585 vehicle sales in October (down 45 per cent compared with a year ago) comprised truck sales of 97,119 (down 51 per cent) and car sales of 73,466 - 34 per cent lower.

The company blamed a lack of consumer confidence amid a deepening credit crisis.

“The market has been shrinking for three years, but in October we saw a dramatic decline for the industry and GM,” said GM North America vehicle sales, service and marketing vice-president, Mark LaNeve.

“We are obviously disappointed in our results which reflect a difficult comparison with a strong year-ago October performance. More importantly, it also reflects an unprecedented credit crunch that is dramatically impacting the entire US economy – from the housing market to big and small companies to banks to family run businesses. The credit freeze has also had a very negative impact on consumers’ confidence and their purchase behavior across America.

“We outpaced the competition with our sales results in August and September, and fell back with the industry in October. If you adjust for population growth, this is probably the worst industry sales month in the post-WWII era,” said Mr LaNeve.

GM clearly saw the shock October sales month coming, with Mr LaNeve announcing the commencement the following day (November 4) of the company's "no-haggle Red Tag Event" sales campaign, which offers special prices and customer cash-back across most of the GM model range.

It is in addition to the company's recently announced “Financing That Fits” program, which allows new car buyers to finance their purchases from GMAC or thousands of other lenders.

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GM and Chrysler merger imminent