Chrysler Says Combination With GM Remains Its ‘Best Option’

Feb. 19 (Bloomberg) — Chrysler LLC, seeking $5 billion in additional U.S. aid to avoid liquidation, told the federal government the company’s “best option” remains a merger with General Motors Corp.

Chrysler is in talks only with Italy’s Fiat SpA about an alliance, said Stuart Schorr, a spokesman for the Auburn Hills, Michigan-based automaker. GM last year held discussions with Chrysler about a combination, and isn’t interested in resuming those negotiations because it’s focused on its own survival, Chief Executive Officer Rick Wagoner has said.

The idea of joining with GM, which also is operating with U.S. emergency loans, was revived by Chrysler in its viability plan filed Feb. 17 with the Treasury Department. Chrysler may be hoping President Barack Obama’s autos task force in meetings that start tomorrow might push for a “shotgun marriage” with GM, said Brian Johnson, a Barclays Capital analyst.

“We expect government aid to continue, with perhaps the condition of a merger of Chrysler into GM,” Johnson wrote in a research note yesterday. The Chicago-based analyst rates GM’s shares “underweight” and doesn’t cover Chrysler, which is owned by Cerberus Capital Management LP.

Chrysler’s request for more federal aid comes after it received $4 billion in U.S. loans. The government has provided $13.4 billion in loans to GM, which is seeking as much as $16.6 billion more. Obama’s autos task force, led by Treasury Secretary Timothy Geithner and White House economic adviserLawrence Summers, will consider the automakers’ requests.

A merger with GM would improve operating profits at the combined company by as much as $58 billion and boost cash flow by up to $54 billion during the next seven years, Chrysler said in its viability plan. Detroit-based GM is the largest U.S. automaker and Chrysler is No. 3.

Chrysler said combining with GM would provide greater benefits than the proposed alliance with Fiat. Chrysler has agreed in principle to trade a 35 percent stake to Turin, Italy- based Fiat for small-car technology and access to global markets.

The Detroit Free Press reported Chrysler’s comments about a merger with GM earlier today.

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One Response to Chrysler Says Combination With GM Remains Its ‘Best Option’

  1. Dr. Mulli says:

    This is a Business Organisation topic and deals with the potential gains from a merger. Chrysler wants the merger, GM does not, the US Government may force one. What is interesting here is whether the interference by the government in business is healthy. Is this not the basis of a Command Economy? Japan and the consequences of support given to financial institutions that were failing, provides a noteworthy history of economic demise that could be a lesson worth takes notes from.

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