Chrysler and GM have merger talks

DETROIT/NEW YORK (Reuters) - Chrysler has had talks with General Motors about a deal to combine the No. 1 and No. 3 American automakers at a time when both are struggling to cut costs and shore up cash, according to three people familiar with the matter.

Talks between Chrysler's majority owner, Cerberus Capital Management CBS.UL, and GM began several weeks ago and were initiated by the private equity fund, according to the people familiar with the talks, who spoke on condition of anonymity.

But the talks got hung up on the question of how to value Chrysler's loss-making auto operations, which include the Chrysler, Dodge and Jeep brands, two of the sources said.

At the centre of the proposed deal was a swap with GM that would give the private equity firm the 49 percent stake in GM's finance company GMAC that it does not already own. In exchange, Cerberus would hand over the Chrysler auto business to GM.

But GM rebuffed that offer because it saw it as overpaying for Chrysler. It would also have meant taking on the challenge of cutting overlapping brands, dealerships, factories and union-represented workers, one source said.

Cerberus bought an 80.1 percent stake in Chrysler from Daimler in 2007 for $7.4 billion. It paid the same amount to GM in 2006 for a 51 percent stake in GMAC.

Although the Cerberus deal valued the No. 3 automaker at over $9 billion, a current value for Chrysler's auto operations could be less than $1 billion, the source said.