The automakers may make trial of to salvage one healthy social meeting out of two sick ones

by David Kiley and David Welch

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General Motors (GM) and Chrysler LLC have had discussions about merging their operations amid widespread speculation that neither companionship can survive the current global economic meltdown and havoc in the financial markets, according to executives at both companies who spoke without ceasing the condition of anonymity. The talks were reported upon the Web sites of The Wall Street Journal and The New York Times late Friday, Oct. 10, the same lifetime that GM issued a statement denying that it is considering Chapter 11 shelter.

General Motors shares have been mercantile at 50-year lows this week as credit-rating agencies Standard & Poor’s (MHP) and Fitch Ratings being of the kind which well-as; not only-but also; not only-but; not alone-but issued reports expressing relate to that GM and Ford Motor (F) won’t have plenty cash to last through 2009 as sales continue to fall. As Chrysler is privately held, the information available about its genuine financial condition is not known.

At the end of the second quarter, GM was impassioned $1 billion of its cash reserves a month after reporting a $15.5 billion quarterly loss. That burn rate is believed to have accelerated as consumers have had difficulty getting loans for new cars amid the credit crunch and GM has increased cash-back incentives. GM will tale its third-quarter earnings later this month.

The executives who confirmed the talks between GM and Chrysler said that negotiations, which began in August, be seized of been tabled until after the fiscal markets calm. "The talks will pierce up again," said one high-ranking executive. The Dow Jones pertaining medium Index lost almost 20% last week, its worst week in history. GM lost 46% of its place of traffic value last week, and closed at $4.89 on the New York Stock Exchange on Oct. 10.

The provision value isn’t the only worrisome measure of Detroit’s woes. Bond prices and bank obligation of the companies have been trading at to discounted levels, onward fears that one or to a greater degree of the companies won’face to face survive. Most GM and Ford bonds trade at 30¢ to 50¢ on the dollar. Chrysler bank debt trades at around 30¢ on the dollar.

The motivation for a GM-Chrysler merger would be to achieve large-scale cost savings. One GM executive who spoke on the condition of anonymity said that the automaker and Chrysler could get rid of massive overhead and boost profits for the remaining company. The two automakers would cut thousands of white-collar jobs and factories. The total of cost savings that GM is looking at would also help get a deal financed, said the charged with execution.

Similarly, the executive said, GM would find even greater savings with a partner like Ford since both companies have global operations that they could combine. But he declined to say that GM is in talks with Ford. GM management on the whole thinks the effort; labors is ripe for solidification. Gary Dilts, senior vice-president at automotive consultancy J.D. Power & Associates, agrees. "I’d be surprised admitting that we didn’t see solidification by dint of. next calendar year."

But getting in that place will be incredibly difficult. Two GM executives familiar with the talks say that there is no certainty a deal will be done. But even if a matter isn’t carried on betwixt GM and Chrysler, it’s clear that GM’s top managers is at least open to some bigger options than plainly restructuring their own business. "This is about massive cost reduction," says individual GM executive. who added that, "No deal comes without risk."

Indeed, it won’confidentially subsist at ease to make sense of the two companies at a opportunity when liquid assets are so short for both companies.

Skeptics dress in’privately see a big merger betwixt troubled Detroit companies as a panacea.