Grant Thornton Says a GM and Chrysler Transaction is the Best Alternative to Preserve Jobs and Cash

By: PR Newswire
Oct. 30, 2008 02:00 PM

SOUTHFIELD, Mich., Oct. 30 /PRNewswire/ Grant Thornton LLP's Corporate Advisory and Restructuring Services Group announces the immediate release of The State of Chrysler report, which thoroughly examines the company, including its operations, product development, future outlook, strategic alternatives and the hidden value of a potential transaction, including the widely-rumored marriage of General Motors Corp. and Chrysler LLC.

"Chrysler as we know it will cease to exist very soon," said Kimberly Rodriguez, principal of Grant Thornton's automotive practice. "At this point, there are very few options available to either company. We believe a transaction between GM and Chrysler is likely because it would be the most expedient way to protect cash and jobs at both companies. If one or the other company were to fail, we would face a much bigger calamity the collapse of the North American supply base and the potential endangerment of all three Detroit automakers and businesses that depend on them."

The report finds that under a GM/Chrysler transaction, Cerberus Capital Management would likely receive half of GMAC, GM's financing arm, and keep a percentage of the merged manufacturing entity. There is a strong possibility that the federal government and current company stakeholders will participate in a transaction, with the goal of completing a deal before the presidential election.

More specifically, Grant Thornton's Automotive Advisory experts note the following possible outcomes under a GM/Chrysler transaction:

Chrysler has 26 model offerings, of which Grant Thornton considers only seven to be core and likely to be retained (56 percent of sales). These include the Dodge Ram pickup truck, core Jeep-brand vehicles and the company's minivans.

Half of Chrysler's 14 existing manufacturing facilities likely would close. Three already have been announced for closure. A plant reduction of this magnitude would equate to about 12,000 production jobs lost plus another 12,000 administrative positions. Of this amount, a reduction in force of 5,000 has already been announced.

Hundreds of supplier companies would be impacted, which could result in the loss of an additional 50,000 jobs.

Dealer consolidation efforts will intensify. Chrysler and GM combined have 22,000 franchises half of the total in the United States. However, the combined market share of the merged companies would only be about one-third of today's significantly smaller market for new vehicles.

"Despite the significant number of families that will be impacted, the benefits of combining the two companies are both structural and strategic," Rodriguez said. "From an economic and political standpoint, the new company will likely be viewed as 'too big to fail.'"

Other benefits include:

GM is strong in international markets and is increasingly leveraging global vehicle architectures for scale and efficiency. It is a leader in plug-in hybrid technology with the Chevrolet Volt. To this product mix, Chrysler brings seven key models that have been recently redesigned or will be by 2010.

The new company will be a much more powerful force in the full-size pickup truck segment, displacing Ford as the truck leader.

The combined company will have more liquid assets, thanks to the cash on Chrysler's balance sheet.

Significant cost-reduction opportunities will be possible, especially in sales, marketing and administrative functions. Overlapping assets can be sold.

Rodriquez concludes, "On the whole, the combination of GM and Chrysler would certainly create yet another wild ride on the auto industry rollercoaster, where cash and platform position determine the winners and losers."

ORIGINAL: Paladin06

This just keeps getting worse. Glad I got mine when I did.

Grant Thornton LLP's Corporate Advisory and Restructuring Services Group announces the immediate release of The State of Chrysler report

ORIGINAL: RoswellGrey

I think we definitely will own collectors items very soon, Paladin.

ORIGINAL: Paladin06

Some will disagree but, I've always felt that way.

UPDATE 2-GM, Chrysler merger on hold as aid hopes fade-sources
Fri Oct 31, 2008 12:55am EDT Email | Print | Share| Reprints | Single Page | Recommend (0) [-] Text [+] (Adds detail on Nissan-Renault, GM share price movement, comments from Obama, McCain campaigns)

By Jui Chakravorty Das and Kevin Krolicki

NEW YORK/DETROIT, Oct 31 (Reuters) - A deal to merge General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) and Chrysler LLC has hit an impasse after the Bush administration ruled out funding for it, three people with direct knowledge of the talks said.

This puts any merger of the struggling automakers on hold until after the U.S. presidential election, the sources said.

The development adds a new element of uncertainty for the embattled U.S. auto industry as Detroit's political allies warn the sector faces a deepening financial crisis that threatens tens of thousands of jobs.

It also opens the door for Cerberus Capital Management, which owns Chrysler, to restart talks with the Nissan-Renault alliance run by Carlos Ghosn. The private equity firm has seen that option as a backstop to an outright acquisition of Chrysler by GM, one of the sources said.

The sources declined to be named as they were not authorized to discuss the private talks. GM and Cerberus declined comment.

This week, Ghosn said he sees any deals among automakers involving a cash element as unlikely unless the cash came from outside, such as from the government.

Discussions with Nissan-Renault (7201.T: Quote, Profile, Research, Stock Buzz) (RENA.PA: Quote, Profile, Research, Stock Buzz) would likely start with consideration of an expanded product-based tie-up building on an existing deal between Chrysler and Nissan, the source familiar with those talks said.

A merged GM-Chrysler would be the largest automaker by sales, but analysts have cautioned it would struggle to turn around the overlapping Detroit-based operations of two firms that have seen mounting losses tied to a global downturn.

Chrysler, which has seen its sales fall 25 percent this year, said it was moving ahead with a cost-cutting plan and with plans for new vehicles, including a plug-in hybrid.

"We are taking the tough but necessary decisions to stabilize the business in the short-term and making the viable long-term business decisions to restructure the company for the future," Chrysler spokeswoman Lori McTavish said.

GM and Cerberus have been in talks since September, according to sources.

GM had approached the U.S. Treasury in recent days about support for the merger through some $10 billion in new funding that would have included taking an ownership stake in the merged company, people familiar with the talks have said.

TREASURY STAYS AWAY

But a Bush administration official said on Thursday the Treasury Department was not negotiating direct aid for the merger.

Instead, the official told Reuters, the administration was working to speed the distribution of $25 billion in low-cost loans for automakers to retool factories, a move that was authorized by Congress last month.

With merger aid off the table, talks about combining GM and Chrysler are on hold until after the Nov. 4 election when the parties hope to sit down with representatives of the new administration, the sources said.

A decision by the Bush administration to provide the government's first funding for the auto sector since the $1.5 billion bailout of Chrysler in 1980 had been widely seen as the merger's best chance for success.

Private investors consulted in the course of the talks have not expressed interest in providing funding for the controversial deal in the absence of government backing, people with knowledge of the talks have said.

In the absence of a deal, Cerberus pushed ahead with a restructuring for GMAC LLC, the money-losing auto finance and mortgage provider in which it owns a 51-percent stake.

The Detroit-based lender said it was in talks with federal regulators about becoming a bank holding company, which would make it easier for it to participate in a $250-billion bank recapitalization plan.[ID:nN302634]

GM shares, down 76 percent since the start of the year, have reacted this week to word of its progress in the merger talks and its lobbying for federal aid. The stock closed down 10 percent on Thursday after the Bush administration official ruled out merger help from the Treasury.

Analysts have challenged the merits of a GM merger with Chrysler. Grant Thornton consultant Kimberly Rodriguez issued a study on Thursday estimating that a GM merger with Chrysler would likely cut jobs for up to 40,000 of Chrysler workers.

Democratic presidential candidate Barack Obama told NBC news in an interview he would meet with Detroit automakers and representatives if elected.

"My hope is if I'm elected, that I'm immediately meeting with the heads of the Big Three automakers as well as with the United Auto Workers," Obama told NBC. "And to sit down and craft a strategy that puts us on a path for an auto industry that can compete with anybody in the world."

Republican John McCain's campaign has said he favours moving to disburse the $25 billion in low-interest loans already approved for the industry as a first step. (Editing by Anshuman Daga)