GM in talks about buying Chrysler group

By Jamie LaReau, Jason Stein and Bradford Wernle From Automotive News| Feb 17 2007
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General Motors is in negotiations to buy the struggling Chrysler group in its entirety, say sources in Germany and the United States.

High-level talks are taking place between DaimlerChrysler AG and GM executives.

Although the two companies have discussed cooperation on a large SUV, say sources at both companies, the potential deal would go beyond limited product development alliances.

Talk of an alliance was first reported last week in Germany's Manager-Magazin.

GM spokesman Tony Cervone declined to comment on the speculation, saying, "We have always said that conversations (between GM and many other parties) have happened all the time, and many times they don't come to fruition."

A Chrysler spokesperson declined to comment. Other sources have reacted skeptically.

Asked about the possible deal, Klaus Franz, GM's top union official in Europe, said acquiring Chrysler would be a "disaster" for the automaker. Franz is vice chairman of the supervisory board at GM Europe's Opel division, based in Germany.

"This is only a step to remain the number-one automaker. The problem is that Chrysler is in the same situation as GM. They don't have the right product portfolio," Franz told Automotive News Europe.

"This would be comparable to GM's alliance with Fiat. And GM lost a lot of money with that decision. I hope GM learned its lesson."

Roman Mathyssek, an analyst for Global Insight in London, also is skeptical of a purchase: "At the end of the day, if they were really to do that, that would not be a cheap option for DaimlerChrysler at the moment. It would be a lot more effective for the DaimlerChrysler group to look at how they can continue their cooperation."

Last week, uncertainty over Chrysler's future increased as DaimlerChrysler CEO Dieter Zetsche said the company was open to all options for the Chrysler group, including a sale.

"All options are on the table," Zetsche said.

Chrysler unveiled a restructuring plan as it posted a $1.4 billion (1.1 billion euro) loss for 2006. That plan calls for cutting 13,000 jobs in North America by 2009.

According to media reports, DaimlerChrysler retained JPMorgan Chase & Co. to consider options for the Chrysler group.

DaimlerChrysler revealed its latest restructuring plan for Chrysler almost six years to the day after its first attempt at shoring up profits. Zetsche ran Chrysler until taking the top spot in Stuttgart last year.

Although growing ranks of shareholders would like to see Chrysler go, selling it is easier said than done. In Cologne, Germany, Bank Sal. Oppenheim analyst Michael Raab estimates it would cost $34 billion to separate the two businesses.

Analysts say a real stumbling block is the roughly $23.6 billion in unfunded pensions and health care liabilities for retirees that any buyer would want financed in full.

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