Analysts say with GM talks on hold, Chrysler may be forced to file for bankruptcy or liquidate
Written by changthai11 on Sunday, November 9th, 2008
Analysts say with GM talks on hold, Chrysler may be forced to file for bankruptcy or liquidate
NEW YORK (AP) — General Motors Corp.’s decision to put acquisition talks with Chrysler LLC on hold while it sorts out its own financial problems could force the privately held automaker to file for bankruptcy protection or break itself up into pieces and sell them for scrap.
Earlier Friday, Detroit-based GM reported a $2.5 billion loss and warned it may run out of cash this year if the U.S. economic slump continues and it doesn’t get government aid.
While it didn’t specifically name Chrysler, GM said it was setting aside considerations for a “strategic acquisition.”
The decision comes after months of talks between GM and Chrysler’s majority owner Cerberus Capital Management LP about a possible combination. GM reportedly was after Chrysler’s roughly $11 billion in cash and was seeking federal aid to make the deal happen.
While the decision to suspend talks was probably the right one for GM, it leaves Chrysler with big problems, said Aaron Bragman, an auto analyst with the consulting company IHS Global Insight.
“They need to partner with a foreign automaker or they’re left with the options of bankruptcy and liquidation,” Bragman said. “Chrysler is basically not big enough to stand on its own anymore.”
Chrysler has been hit especially hard by the shift in consumer demand toward smaller, more fuel-efficient vehicles. Its U.S. sales dropped 35 percent in October and are down 26 percent for the first 10 months of this year.
As a private company, the view of its finances remains murky. The company did say recently that it lost $660 million in the second quarter.
Following GM’s announcement, Chrysler LLC Chairman and Chief Executive Bob Nardelli said that the automaker continues to explore a variety of options.
“As an independent company, we will continue to explore multiple strategic alliances or partnerships as we investigate growth opportunities around the world that would aid in our return to profitability,” he said in a statement.
GM’s decision could give new life to a deal between Chrysler and Nissan Motor Co. and Renault SA, with whom Cerberus was also said to be in talks, said Laurie Harbour-Felax, president of the Harbour-Felax Group, a Detroit-area auto industry consulting company.
She said it still appears that Nissan is very interested in Chrysler’s trucks, rather than the entire company. Such a deal makes sense in light of the instant U.S. sales boost and plant capacity it would give Nissan, she said.
“I honestly think the pieces are worth more than that whole,” she said.
Nissan Spokesman Fred Standish declined to comment on GM’s losses and whether Nissan was renewing talks with Chrysler.
Cerberus, which along with Chrysler and GM has yet to publicly acknowledge the talks, said it doesn’t comment on speculation.
“We are consistently evaluating potential alliances and investment opportunities,” Cerberus said in a statement. “We remain focused on working to return Chrysler to profitability.”
Bragman said that while Chrysler could draw some interest from automakers in China or India, those companies are facing many of the same problems as their counterparts in the United States.
“It’s far more likely there will be a sale instead of an actual bankruptcy even if they have to break it up into pieces and sell them at a serious discount,” he said. “But Cerberus’ options seem to be rapidly deteriorating.”
(Mainichi Japan) November 8, 2008
