So it would seem that Cerberus has no intention of not selling most of their stake in chrysler.  If Nissan had some to the table with more than 20% in their offer Cerberus probably would have taken more time to consider that deal.  For now we’ll have to settle for Chrysler making Nissan’s Titan and Nissan making a small car for Chrysler - if Chrysler is still around.

The US Treasury has told GM that no, it can’t have anymore billions of dollars, not yours.  GM was hoping that the bailout money would come before the election (or is it Cerberus that is on an accelerated time table?) in the amount of 10 billion.  So far the US has bailed out financial institutions (both GMAC and Chrysler Financial qualify) but has yet to aid any other sector.

The reason for the bank bailout is clear, if the banks fail then no more credit is available and no one can spend any money and we all get to see how our grandparents lived back in the 30s.  Even that bailout is not popular among many in the US, indeed, much of the money is going to bonuses to already really rich guys that ran their bank into the ground.  So when another big corporation like GM comes to the US government and asks for some money the US is reluctant to say the least.

GM is a more sympathetic recipient than banks are, but not by much.  One could argue that the bailout would save manufacturing jobs in the US at a time when outsourcing is the norm.  Even though GM would have to slash about 50,000 jobs from Chrysler immediately, in the long run it saves the biggest automaker in the world.  Better to see one absorbed than both die off.

There are two problems with giving taxpayer money to GM.  First, it is not clear that GM and Chrysler will both fail if left separate.  No one has made a convincing argument there.  And (still part of the first reason) it is not clear that the combined company will succeed.  I have yet to see a convincing argument that shows me the combined GM/Chrysler company make it through the next few years of poor sales.

The second problem with US aide here is if they give it to GM/Chrysler for a merged company they also have to give it to Ford, and eventually anyone that comes begging.  The line of companies in trouble will never end, better to draw the line at the banks and be done with it than see the government as a partial owner in every sector in the US market.

First, I want to point out that most mergers in history are not successful.  Second, I would like to point out that most mergers happen between a company that is doing well and a company that is doing poorly or between a company that is doing well and a company that is doing ok.  I can’t recall any merger, especially a successful one that happened between two companies that are bleeding money.

Second, the talks surrounding the merger are not yielding much information, though various news outlets have quoted sources.  So most of what we think we know is speculation of some kind.  With that in mind I would like to add my speculation to the mix.

From most of the reports coming out of Chrysler (and I watch the company closely) it would seem that Chrysler is well on it’s way to becoming profitable all on its own.  Every time Nardelli or Press talked about Chrysler they said that they were meeting and exceeding their goals for becoming profitable.  Then the credit market seized up and a lot of things went out the window.

I believe that the guys at Cerberus think they know how to make any company profitable, and that includes automakers.  They took a look at GM and saw that GM was bleeding money fast and is in a tough position.  This makes them an easy target.  And why not?  Cerberus already owns one american automaker, combine the two and make them profitable and now you have a much bigger piece of the pie.

From there Cerberus must have done a study to find out what brands in a proposed company would be the most valuable.  They find out that the Chrysler brand itself is one of the brands that needs to go, so they can’t position the merger as Chrysler buying out GM.  It would look silly to have Chrysler buy GM and then shut down the brand that the company is named for.  So it needs to be positioned as GM buying out Chrysler.

This also helps out Cerberus by making GM the bad guys.  The only way to make the combined company work is to cut all redundant staff.  If it’s GM doing the buying and the cutting Cerberus comes out of this a lot cleaner than if Chrysler buys out GM and kills the staff.

There are reports that Cerberus (from the company itself) wants to have a stake in the combined automaker.  This would seem to support the idea that they want to combine the automaker and have a bigger piece of the pie.  Since Cerberus would probably be the biggest stock holder in the company they would get to cherry pick the board members that they want.  There are conflicting reports on this, Cerberus denies that they would can any of the GM board members, but most of the GM board seems pretty cool to the idea of a merger.  Why wouldn’t they if their jobs are gone after the merger?

Overall I see this as Cerberus seeing an opportunity to own a large portion of the biggest automaker in the world.  They think they can reduce costs by cutting redundant workers and improve the image and quality of their cars.  I think they’re biting off more than they can chew.

Renault-Nissan has a presence in the US market through Nissan, but it’s a small one.  The company has been looking for a partner in the US for some time now, they’ve proposed alliances with GM in the past.  Now, at a time when Cerberus seems like it wants to get out of the car business and has been pushing for a GM/Chrysler buyout/merger Renault-Nissan is proposing to buy 20% of Chrysler.

The two companies are already partnering on vehicles.  Nissan will make a small car for Chrysler and in return Chrysler makes the Nissan Titan and provides Nissan with Heavy Duty trucks as well.

It’s believed that Cerberus would prefer a GM/Chrysler buyout, but so far that deal seems to be halted without any avenue to get financing for the deal.  GM would need to raise a lot of cash to buyout Chrysler workers, and they can’t find a bank willing to lend it to them.

Carlos Ghosn, CEO of both Renault and Nissan has publicly denied any kind of merger as recently as July, but things have changed a lot since then.  He also states that he’s against buying up companies.

“I think that when people talk about consolidation, they imagine company A buying company B. We know this does not work,” Ghosn said at a grand opening celebration of the company’s new North American headquarters in Nashville, Tenn. “Company A buying company B is guaranteed destruction of value after a while.”

And so far he’s practiced what he preached.  Renault owns a 44% stake in Nissan and Nissan owns a 15% stake in Renault.  With both companies sharing many parts under the hood to reduce costs but otherwise remain autonomous of each other.  The only link other than the parts sharing is Ghosn himself, as he’s the CEO of both companies.

Source: Detroit Free Press

While I would prefer Chrysler remain independent I would also concede that Renault is wildly preferable as a buyer of Chrysler than GM.  Renault would keep Chrysler intact while GM would burn it to the ground keeping only bits and pieces.

According to a Wall Street Journal report, talks between General Motors and Cerberus/Chrysler are “floundering” as GM is having a tough time finding investors who would be willing to finance any deal between the two US automakers.

General Motors and Chrysler have been suggesting a plan that would save $10 billion while at the same time 40,000 jobs at a combined company.  Backers of the deal between the two car companies think that the combined company would produce $250 billion in annual revenues, with sales around 30% of the US market.

Of course there’s also the $10+ billion in cash that Chrysler holds and the combined company would hold about $30 billion in cash, improving GM’s credit rating and helping the company get through the next couple years of being in the red.

While the plan seems like a no brainer at first glance, many potential investors are having trouble accepting that a deal would do anything for either GM or Chrysler.  The WSJ puts it, lenders remain fearful of the complexity and scale required to combine two massive industrial companies given extreme uncertain in the credit markets. The article points out that if investors continue to be wary of the deal, executives may need to bring the plan in front of the US government, hoping for a possible intervention.

Sources say they are unsure of what role the government would take in the event of a deal, but believe that a government stake in the combined automaker would be “very important”.

With all the rumors flying around about the chrysler sale and or merger many journalists have posited that Renault-Nissan is one of the potential buyers.  It makes sense, afterall, Nissan and Chrysler have a close relationship right now.  Starting in 2010 Chrysler will build the Nissan Titan and Nissan will build a small car for Chrysler.  For that deal to take place Nissan would’ve wanted to look at the books pretty closely to make sure that Chrysler wasn’t going out of business.

With all that knowledge journalists are saying that Renault might buy up Chrysler like it did Nissan and just run the company independently.  Afterall, Renault doesn’t have a strong presence in the US and they have been clamoring for one for years now.  The addition of Chrysler would also make Renault a powerhouse spanning three continents.  Another more recent possibility is that Renault buys the Jeep brand from Cerberus and GM gets the rest.

But now we are getting reports that Renault isn’t in the running for Chrysler nor it’s Jeep brand.

“There are no discussions. We are focusing on dealing with the current market situation,” Renault spokeswoman Frederique Le Greves said. A spokesman for Nissan declined comment on any talks with the Japanese automaker which is 44-percent-owned by Renault.

So it would seem that with Renault out the only other possible buyer is GM.  And with GM buying Chrysler you can bet things would change.

While there are many sites and journals and blogs out there reporting that GM and Chrysler are just a hair away from merging one is reporting of the financial roadblocks to such a merger.  As it stands right now Cerberus has stated that they want to retain a major stake in any combined company, it’s unclear how any kind of merger would deal with the 19.9% of Chrysler that Daimler still owns.

JPMorgan owns a lot of the debt that Cerberus took on to get Chrysler.  They have been pushing for a merger and likely would put some financial backing to it, but the amount of money needed to get something like this done is beyond what JPMorgan would or could handle.  Right now the financial markets are not favorable to any type of transaction of this magnitude happening.

Rick Wagoner, the CEO of GM seems to be desperate to have a merger take place (his legacy right now isn’t all that great and the merger might shine a little bit of light on it).  But the board members at GM are reluctant to merge GM with Chrysler.