GM and Chrysler consider merger

— -- If they bail, it could push Friday's closing share price of $4.89 to a record low and pull down other auto stocks.

GM had considered acquiring Chrysler before Cerberus Capital Management bought 80.1% of Chrysler last year.

But in today's rough auto and economic climates, plenty of industry observers say it makes no sense.

"I am quite baffled how this could work," says Joseph Phillippi, veteran Wall Street auto analyst and head of AutoTrends Consulting.

"Welcome to the club" if it seems preposterous, says David Healy, auto analyst at Burnham Securities. "The history of big auto mergers is poor."

The discussion between GM and Cerberus was confirmed by people familiar with the talks, who spoke only if they weren't named. Those people said the talks predate recent global financial turmoil and Congress' passage of a $700 billion financial markets rescue package, and are on hold until the economy seems more stable.

The same people portray the talks as among many that most automakers are having with each other as they explore ways to survive what's becoming a global economic slump.

"Everybody's talking with everybody else," says David Cole, head of the Center for Automotive Research.

Thus, even though car companies keep such talks private because most don't work out, there could be a drumbeat of reports about Cerberus and others shopping for partners.

Despite doubts, some analysts see benefits in a GM-Chrysler merger.

Cerberus, which also controls 51% of lender GMAC, would get the other 49% of GMAC from GM in such a deal. That would happen just as the government's bad-loan bailout plan could erase GMAC's troubled mortgages and auto loans and make the lender profitable again.