6 MIN. DE LECTURA
(For more Reuters' DEALTALKs, click [DEALTALK])
By Kevin Krolicki
DETROIT, Oct 26 (Reuters) - General Motors Corp (GM.N) and Chrysler LLC's owners are discussing a merger that would keep some of Chrysler's operations intact and save jobs with the aim of securing U.S. government financial aid the high-stakes deal would require, people familiar with the talks said on Sunday.
A merger under these terms would give control to GM but leave Chrysler's owner, Cerberus Capital Management [CBS.UL], with stake of less than 10 percent in the combined company, according to the sources who were not authorized to discuss the talks publicly.
Such a merger would shake up the U.S. industrial landscape and create an automaker with about a third of the U.S. car market by sales. But its immediate success would hinge on the willingness of the next U.S. administration to step up with billions of dollars in immediate aid.
The amount required would dwarf the $1.5 billion in loan guarantees that kept Chrysler from failure in the industry's last government bailout almost 30 years ago, the sources said.
It would also require the backing of GM's board, which has been steadfast in backing Chief Executive Rick Wagoner through a painful and so-far failed restructuring effort since 2005. The board has withheld judgment on the proposed merger so far.
A deal brokered with the support of U.S. lawmakers would leave GM executives walking a delicate balance in managing a bigger but still deeply troubled automaker.
Costs and production would have to be slashed. But the merged company would also have to show it represented a less painful alternative for American workers and suppliers than the failure of one or both of the struggling auto giants.
"It's clear that there are three parties at the table. There's GM, Cerberus and then there's the government," said one person briefed on the talks.
GM, Chrysler and Cerberus declined to comment on Sunday.
Until now, attention has focused on the prospect of a GM acquisition in which the larger automaker would move quickly to cull Chrysler's slow-selling vehicle line-up and cut more than half of Chrysler's 66,000 employees.
Analysts have been skeptical that a deal even under those ruthless terms could deliver sufficient savings since GM and Chrysler face many of the same problems, including an excess of workers, dealers and factories, along with product line-ups that rely heavily on sales of gas-guzzling trucks and SUVs.
While a deal that keeps more operations afloat would risk deepening those problems of excess capacity, it could also win government backing and provide GM with much-needed liquidity.
Analysts say GM would also almost surely opt to shut down Chrysler's separate supply of engines, transmissions and powertrain components and merge those with its own.
GM has failed to find an outside investor to help fund its acquisition at a time when global auto sales are slowing and sales in the U.S. market are dropping toward the lowest level in two decades, sources said last week.
In addition, Chrysler creditors have been wary of restructuring its $7 billion bank term loan due in 2013, a person familiar with the financing effort said last week.
That has put the focus on the U.S. government as lender or investor of last resort to save the deal, sources said Sunday.
By retaining a stake in the combined GM/Chrysler, Cerberus hopes to benefit from an auto recovery, they said. It acquired an 80.1 percent stake in Chrysler in a 2007 deal with Daimler AG (DAIGn.DE).
GM sees a retained Cerberus stake as helping to align the interests of finance company GMAC with sales for its brands including Chevrolet and Cadillac, helping to bridge a widening gap between GMAC and GM's more than 6,500 U.S. dealers.
Cerberus bought a 51-percent stake in GMAC in 2006 from GM as the automaker looked to raise cash for its restructuring.
But under Cerberus, GMAC has pulled back hard on its auto lending, restricting loans to the most credit-worthy borrowers and costing GM sales in an already tough market.
GMAC has cited tough credit markets as a reason for the tighter standards. But many dealers see it as a tactic by Cerberus to exert pressure on GM at the bargaining table.
Last week, members of Michigan's congressional delegation including Rep. John Dingell, a Democrat and chairman of the House commerce committee, urged the Bush administration to consider dramatic steps for the ailing U.S. auto industry.
Sen. Carl Levin, a Michigan Democrat, went further at a campaign debate when he said the federal government should support a Chrysler merger another automaker.
"This is an area where you can say the costs of prevention are less than the costs of a cleanup," said David Cole, chairman of the Center for Automotive Research, which receives support from the industry.
Cole estimated that up to 2 million U.S. workers will see their jobs threatened in the event of a bankruptcy by GM or rival Ford Motor Co (F.N) as the knock-on effect topples suppliers and other related companies.
Both candidates for president, Democrat Barack Obama and Republican John McCain, have backed support for the embattled automakers. McCain said on Sunday that he favored a quick release of $25 billion in already approved government loans for technology development as an initial step.
"I think there is a 90 percent chance that both parties will realize what has to be done and do whatever it takes," Cole told Reuters on Sunday. (Additional reporting by Jui Chakravorty in New York, David Bailey in Detroit; Editing by Peter Bohan and Lincoln Feast)