Saturday, October 11, 2008

GM merger talks portend further decline of U.S. auto industry

News that Chrysler and General Motors have held preliminary merger talks casts doubts on recent reports that GM finally planned to invest in designing a quality small car to compete with international rivals. A deal for Chrysler doesn't make sense, as Chrysler also is losing money with unpopular cars, and the very fact that the No. 1 U.S. automaker is exploring one indicates that General Motors would rather make money playing with money than by building a great car. This does not bode well for the future of the U.S. auto industry. It's been 30 years since U.S. automakers were put on notice about the current oil price shock, and it's been 30 years of stalling and lobbying for tax breaks instead of building small cars. The Reuters international news service cited unnamed sources as saying General Motors and Cerberus Capital Management LP, Chrysler's majority owner, have been talking for several weeks about a possible merger. Reuters said the deal included an equity swap that would give Cerberus the remaining 49 percent of GMAC, GM's finance company, in exchange for Chrysler's auto business. But GM said Chrysler was being overvalued and turned the deal down, Reuters said. Cerberus bought an 80.1 percent stake in Chrysler from Daimler AG for $7.4 billion in 2007 and bought 51 percent of GMAC in 2006.

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