BusinessWeek has learned details of the proposed merger betwixt GM and Chrysler. The rewards are huge—but so are the obstacles

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General Motors CEO Rick Wagoner Bill Pugliano/Getty Images

By David Welch

As top executives at General Motors (GM) and Chrysler proprietor Cerberus Capital Management continue to talk about a merger, the most popular scenario at this point would still have completely three companies joined at the hip.

Talks betwixt the two companies continue, and while a deal is far from certain, the two sides are narrowing in on a merger structure that the pair think could work, BusinessWeek has learned. The basic outcome has GM folding Chrysler’s auto business into its own while Cerberus would merge lending branch Chrysler Financial Services and GMAC Financial Services. Cerberus owns 51% of GMAC while GM owns the rest.

If that deal goes from one side, GM would end up owning a minority piece of the merged finance fellowship and Cerberus would after what is stated have a stake in GM. While many analysts have figured that Cerberus would retreat from the car profession, the private equity firm would remain deeply in the game. If the give ends up working this way, every society involved has a vested interest in seeing the other succeed. It would mute behoove Cerberus to run the combined lender so that it helps vend more GM and Chrysler cars.

Such a deal would give GM the chunk of revenue from Chrysler’s estimated 1.4 million customers and the $11 billion in cash in succession Chrysler’s books. Meanwhile, Cerberus would get the merged lending business it has wanted since it acquired Chrysler from Daimler (BusinessWeek.com, 5/14/07) more than a year since.

Sources close to both companies say that if the two lenders and two automakers are combined, quite would have better balance sheets. Then they can weather the assault and get to 2010, when executives on both sides think a repaired health-care act through the United Auto Workers will save money, and auto sales will rebound from today’s dismal levels.

But there are many hurdles to getting a quantity ended and making the synergies work. Both sides need to agree on the sort of the traded assets are worth. Even if they do, there are issues to be worked out with the unions, who will be frightful of huge layoffs. One source close to the talks says that GM Chairman and CEO G. Richard Wagoner Jr. is keen on the merger but is influencing very cautiously. He does not want to forge such an historic tieup if the risk of failure is too great.

The merged car company would have a dizzying 11 brands to horsemanship and more than 10 million vehicles in global sales a year with automotive revenue of roughly $220 billion.

GM executives think they can benefit from Chrysler’s pay in money and receipts, while cutting thousands of headquarters jobs and overhead to create a profitable revenue stream. One rise have existence concluded to the talks aforesaid that GM "will save billions at the start and many billions more in the coming time" if they do the deal.

But by both companies burning ready money, they will have to race to get those savings. "The classic merger arguments put on’t apply because they don’familiarily have the time to realize them," says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich. "If the recession is considered in the state of deep as everyone thinks, GM could run public of turn into money nearest year."

As for the combined lending company, in the past GM has rebuffed the idea of merging them for fear of diluting the company’s ownership in GMAC. When Cerberus bought Chrysler from former parent Daimler (DAI) in May 2007, the private equity hercules had to carve Chrysler Financial out from Daimler’s lending influence and rebuild more of the back-office and loan-approval operations.

Think of the current market and economic turmoil as a disaster by committee, with blunders by government officials, Wall Street pros, and regular Americans alike

By Ben Steverman and David Bogoslaw

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U.S. Treasury Secretary Henry Paulson, Federal Reserve Board Chairman Ben Bernanke, Chairman of the Securities and Exchange Commission Christopher Cox, and Director of the Federal Housing Finance Agency James Lockhart III. Chip Somodevilla/Getty Images

Tune in to Anderson Cooper on CNN and watch as he counts down the "10 Most Wanted Culprits of the Collapse." Pick up the New York Post and read about FBI investigations of top financial firms under the headline "Fraud Street." With a bewildering and frightening financial crisis in full swing, the new national pastime is finding someone to blame.

As markets crash and retirement dreams fade away, media and the public are filled of outrage at everyone from mortgage brokers and Wall Street CEOs to real estate investors to experts who failed to prognosticate the emergency was future. Congress hauls the most prominent executives before tough committee hearings, while political candidates blame each other. Pundits proffer lists of the mustache-twirling villains who caused the whole thing.

Investigators will undoubtedly take the cover off fraud, cheating, and other criminal behavior. But for now, in that place is no shortage of players who stand accused of having a hand in the crisis. It just depends on where you think the landslide began or who gave it the biggest push.

If you blame loosened fiscal regulations, as luck may have it maker Sen. Phil Gramm (R-Tex.) or Securities & Exchange Commission Chairman Christopher Cox are your men.

Think that a political push to boost homeownership handed too many people mortgages they couldn’t afford? Why not single exhausted Franklin Raines, former CEO of Fannie Mae?

Maybe you think the whole housing bubble could have been avoided with an interest rate greaten (Alan Greenspan, step right up). Or, that folks should in nay degree have signed up for no-doc, interest-only loans, no matter by what mode numerous silhouettes danced across their computer screen in a Web ad. In that case, the villain may be no further than your bathroom example.

(For a range through some of those people who are blamed for having a hand in the meltdown, go to our slide show.)

Of course, all of these people had something else in mind other than wrecking the U.S. economy. Some of them were making lots and lots of standard of value—notwithstanding themselves, of course, still also since their investors. Others truly believed in the virtue of freeing the marketplace’s animal spirits from the cold hand of government regulation. And for what cause many people were arguing over against the virtues of homeownership?

Just the fact that one can assemble such a long list of possible villains gives a suggestion as to how sundry institutions, officials, and regular Americans made mistakes. "It’s so difficult to pinpoint person person or two the public," says Georgetown University finance professor Reena Aggarwal. "It positively was the whole system."

Even Presidential candidates eager with regard to votes take acknowledged there’session no easy scapegoat. "Part of the reason this crisis occurred is that everyone was living beyond their means—from Wall Street to Washington to on the same level more on Main Street," Senator Barack Obama (D-Ill.) said on Oct. 13.

Indeed, it was a concatenation of bad ideas, wonderful linkages, and all-too-predictable blunders that came side by side to emit the U.S. financial system, and at that time the unalloyed world plan, into a serious credit crunch and global stock alarm. That’sitting not to say that it couldn’t have been prevented.

Washington’s limited nationalization of banks marks a fundamental shift in thinking almost the relationship of the public and private sectors

By Pete Engardio

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On Oct. 11, amid a week of astonishing developments in the global stock and credit markets, Federal Reserve Bank of Dallas President Richard W. Fisher addressed the high and vehement of global finance in Washington during hinging meetings of the Group of Seven and the International Monetary Fund. The gravity and complexity of the 15-month-old credit turning point called for action that transcended familiar ideological categories, he hinted, such since free markets vs. state interposition. Fisher even borrowed a Chinese proverb popularized by the late Chinese leader Deng Xiaoping: “No matter whether it is a white cat or a black cat, as long for the reason that it can arrest mice, it is a good cat.”

Back in the late 1980s, Deng meant that China needed to abandon basic tenets of fourierite true faith that stood in the way of prosperity. In these tough state of things, the proverb resonates in another way. The Bush Administration, by committing $250 billion to buy theoretical stakes in a huge swath of the U.S. banking system and extending all manner of pecuniary guarantees to depositors and money-market investors, has just violated more enshrined principles of American-style, free-market capitalism.

You might dismiss every one of this as excessive measures for extreme general condition of affairs, a pragmatic adjustment that will be quickly undone once order is restored. But the significance, not to mention irony, of a Republican Administration partially nationalizing the U.S. banking system cannot be overstated. It could well go below the horizon as an important turning point in postwar American economic history, the beginning of a fundamental rethink of the proper boundaries between the the community and individual sectors. “The pendulum between the declare and markets is swinging back before our eyes,” says Daniel Yergin, co-author of the 1998 book The Commanding Heights, which chronicled the triumph of market capitalism above state-led economics since World War II. “And it is happening a lot faster than anyone expected.”

As America struggles to recover from the deep recession that likely lies ahead, a new household facsimile could take shape that would involve a lofty deal more than direct ruling power involvement in the world of Wall Street. It could mean greater support of such industries as autos, nanotech, and renewable energies, which face fierce global competition. And it certainly spells a return of heavier regulation. It is very much over early to betoken that the U.S. is headed down the highroad of Asia-style industrial policy or the kinds of interventions imposed for the time of the Great Depression, when bureaucrats seized and micromanaged entire industries. The U.S. won’t have voting rights in continuance the preferred shares it bought in Bank of America, Citigroup (C), JPMorgan Chase (JPM), and others. And analysts doubt Washington will dictate lending. But as Yergin notes: “The political projection has not even begun to get ahold of this.” If Barack Obama wins the Presidency, possibly with a filibuster-proof majority in the Senate, the next Administration could have a mandate for sweeping change.

Unlike many other recessions, this one wasn’t caused by a downturn in a few specific industries. It started with a housing bust and then metastasized into a full-blown credit crisis that eventually destabilized the entire U.S. financial classification. As previous pecuniary crashes in nations of that kind as Japan and Mexico have shown, recovery can take years. “We order view de-leveraging on such a scale that we are in uncharted waters,” says economist Hung Tran of the Institute of International Finance, a Washington contemplate tank.

In fact, the crisis has been so devastating that once-cherished assumptions about the superiority of the U.S. economic model are now in doubt. Take the universal essence that the American economy could keep flying high as its manufacturing base withered. The idea presumed that introduction of novelty and productivity alone would create the wealth and high-paying jobs needed to boost U.S. living standards.

Bram Cohen has Asperger’s, what one. makes it obdurate to deal with everyday life. Even so, he started his own company, BitTorrent

By Susan Berfield

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Bram Cohen’session brain works differently from most people’s. He has Asperger’s syndrome, a condition that keeps him rooted in the globe of objects and patterns, puzzles and computers, but leaves him floating, disoriented, in the everyday swirl of human interactions.

When Cohen was in his late twenties he sat on a clumsy chair with a Dell (DELL) keyboard on his lap for the better duty of nine months writing a software program. In 2001 he introduced BitTorrent, an ingenious, disruptive, and controversial fire-arm of technology that is available for free and lets people easily give and take reciprocally huge amounts of digital information,from software upgrades to videos. Pirated movies bear unceasingly been the most popular files shared. They, along with more legal files, now generate with reference to half of all traffic on the Internet.

BitTorrent brought Cohen celebrity and vogue. It turned him into a folk hero and a Hollywood villain. Later, to reclaim the program for himself and possibly for more greater gain, Cohen was obliged to become something otherwise he had never considered: a emboss. Four years ago, at age 29, he co-founded a company, BitTorrent, to build a business around his software. He got good money from venture capitalists end is still trying to find a convincing strategy.

For Cohen, this has been a fraught journey into the sometimes bewildering world of the office. The social conventions that ease everyday interactions can still elude him. He doesn’t like to jolt hands or wear shoes or make small talk. He often plays through a Rubik’session Cube. Sometimes while he is outraged, or more often when he is fatigued, he bursts onward with unwelcome candor. He can be oblivious, lecturing on solar cells or economic theory or euphemisms until someone stops him.

Cohen’s predicament is not so unusual. Asperger’s, only formally recognized in the mid-1990s, is being diagnosed with increasing frequency. Many psychologists look on it taken in the character of a mild form of autism, though that definition is polemical; more advocates believe it is simply a different way of being. In the coming years more people like Cohen will arrive in the workplace, and their carriage will have significant consequences, perhaps most obviously in the way we communicate.

Cohen’s non-age in Manhattan was single in kind of isolation. He lived comfortably sufficiency with his mother and engender and younger brother, Ross, and they shared a energetic intellectual life. But he had no friends. At 16, he could program in three languages. Yet he could not comprehend the communicative hierarchies of adolescence. “I was picked on a lot,” he says. “There was something obviously wrong with me. But it wasn’t acknowledged until I was much older that something had always been off-kilter. Were I to have to redo high school, I would just send down to the end immediately.” He attended the State University of New York at Buffalo for one miserable year and then left.

Back in Manhattan, staying with his parents, he struggled in the moving world as a computer programmer. “At first he would exist enthusiastic, and afterward pretty pretty soon he would tell the people who were running the startup they were doing things wrong,” says his father, Barry, a penman who had returned to exercise to application of mind computer science. “If they didn’t listen to him—and they never did—he would say ‘this is stupid’ and he would quit.”

By 1997 the collection of laws rush was on, and Cohen went west. In San Francisco he felt at quiet, and fair a bit elated, surrounded by other computer geeks. Here his trouble deciphering human complexities, his seeming indifference to social imperatives, and all his quirks of character were mostly viewed as beside the epigram. The point was what he could accomplish. In this, Silicon Valley is not taken in the character of distinct a place as it puissance seem. Psychologists have noticed clusters of people with Asperger’s in whatever place in that place is a concentration of high-tech companies.

It took Cohen a few years and several more startups before he discovered what he wanted to bestow: find some efficient way to share huge amounts of digital data.