GM-Chrysler likely to join hands

Detroit, October 19: With all the auto majors grappling with tough market conditions, General Motors and Chrysler are pushing for a quick unification deal to weather the downturn. It is learnt that both companies are eager to wrap up the deal before the U.S. presidential election, which is just over a fortnight away.

Tightening norms in the credit markets have had negative implications for auto sales. Analysts feel that October sales would plummet by 30 percent to an annualized rate of 11 million vehicles.

Overall auto sales are expected to be 16 percent lower this year than last. Sales are expected to fall another 11 percent next year. These sales numbers and intensifying liquidity crunch threaten to kill the major Detroit carmakers. All this has resulted in auto makers looking for an alliance.

Chrysler had been talking to foreign automakers about taking over the company. It has switched to General Motors for a similar deal now. A person familiar with the negotiations said on Friday that the merger discussion is at an advanced stage and the top executives of both companies are looking at fine-tuning the deal now.

Van Conway, president of Conway MacKenzie and Dunleavy, a Detroit-based turnaround and merger consulting firm said, "I think when two businesses are losing money in the same market down the road from each other, evaluating a merger should always be done. Maybe you do it for five minutes, maybe you do it for five months."

Combining Chrysler and GM would enable these companies to cut surplus vehicle brands and operations. Chrysler's money stack would facilitate GM to tide over its cash problem. On the negative side, there could be huge job cuts.

The upside of the negative was aptly quoted by David Cole, chairman of the Center for Automotive Research in Ann Arbor. He said, "This would be good for the state because whatever happens in combining is going to be a lot less severe than an outright disaster."