Analysts: GM would need cash in merger with Chrysler

DETROIT -- For General Motors Corp. to acquire Chrysler LLC and all of its warts, GM would have to get desperately needed cash as part of the deal. Lots of it, according to industry analysts.

With both automakers struggling to survive amid slumping sales, a slowing global economy and an unprecedented credit crunch, it's unclear whether Chrysler's majority owner, Cerberus Capital Management LP, would be willing to pay up, or whether the federal government might even get involved to save one or both struggling automakers.

"There's got to be more in it for GM than just Chrysler," said Erich Merkle, an auto industry analyst with Crowe Horwath LLP, an accounting and consulting firm. "If you put two auto companies together, both that are losing money, both that are losing market share, you've just got an auto company that's losing market share faster and losing more money."

GM and Cerberus, which owns 80.1% of Chrysler, have held preliminary talks about an acquisition or other combination of the two automakers, according to a person familiar with the discussions who did not want to be identified because the talks have not been made public.

A tie-up between the automotive giants would be historic for the industry and solidify GM's position as the global sales leader, which it has been in danger of losing to Toyota Motor Corp. GM and Toyota finished 2007 essentially even in vehicles sold worldwide.

GM and Chrysler already have a joint venture with BMW AG making a hybrid gas-electric powertrain. While melding the companies could save money by combining management, engineering, manufacturing and administrative staffs, analysts say consolidation would bring more costs, and the rewards probably wouldn't come for several years.

That might be too late for both automakers.

Auburn Hills-based Chrysler, a privately held company, doesn't have to open its books, but it lost at least $510 million in the first quarter and $1.6 billion last year. Its sales are down 25% so far this year, the worst drop of any major automaker.