General Motors to Absorb Chrysler in AMC-Style Deal?

Twenty years ago in 1987, Chrysler purchased American Motors Corp. (AMC), the eclectic automotive oddity which brought

Could Chrysler be absorbed by GM like the Auburn Hills company eliminated AMC 20 years ago? Chrysler got Jeep and a few good car names like Eagle. (Photo: Chrysler)

us the infamous Pacer, a fishbowl on wheels, the Gremlin, which caused ‘70s era consumers to ask where the other half of the car went, and the Matador, little more than a full-size Pacer, as well as, on the positive, the Javelin muscle car, Eagle crossover, and the Jeep brand. Yes, it soon became apparent that Chrysler was only interested in the latter 4x4 icon, keeping Jeep and folding the AMC nameplate, although names like Eagle, Concorde and Spirit would end up in its lineup in years to come.

Now a similar scenario could play out amid our current economic crisis, but Chrysler is no longer the big fish capable of swallowing up an out-of-touch carmaker, but rather GM, one of the largest automakers in the world has been in talks with the Auburn Hills automaker's parent company Cerberus Capital Management LP, a private equity firm, for more than a month about undisclosed collaborative efforts.

Yes, we know that such talks could be as docile as the cooperative development of a new powertrain or small car platform, but yesterday well-respected Detroit News reported on one scenario that could prove much more in-depth.

It's all about timing. Cadillac's hot... (Photo: Cadillac)

The daily newspaper reports, from information gathered by an inside source, that General Motors Corp. might “swallow” up Chrysler LLC and in one fell swoop put an end to 83 years of automotive history.

Why would GM want to take on a money-losing automaker struggling with many of the same issues it is also dealing with only to kill off its brands? The obvious benefit would be the addition of 2.7 million in annual unit sales volume, without having to absorb the majority of Chrysler's costs. And then there's the element of cash reserves. Chrysler has, or at least had $11.7 billion at the end of June, according to the report, which could be used to buy out some of Chrysler's dealers and simultaneously boost GM's finances.

Such a deal would see the elimination of one or all of Chrysler LLC's brands, however,

....but other than minivans Chrysler is not. (Photo: Justin Couture, Canadian Auto Press)

although most analysts agree that GM would be better off to drop Hummer in place of the more relevant Jeep brand, considered to be Chrysler's crown jewel.

But while Jeep would indeed be an asset and Chrysler's minivan duo a solid answer to a segment the General never got quite right despite enjoying strong sales with its Chevy Venture (and slightly less so with the updated Uplander) and Pontiac Montana models, Chrysler doesn't have much else to interest GM as far as products go. As it is, both companies compete head-to-head in most segments, which would cause redundancies needing elimination. Such a buyout, therefore, would be an excellent way to remove a competitor from what all expect to be a very bumpy road ahead for the General, and most other automakers.

Reducing excess capacity in the North American market, where Chrysler sells most of its cars, would benefit more than just GM, of course, with Gerald Meyers,

Jeep would live on no matter what... (Photo: Steven James Day, Canadian Auto Press)

former chairman of AMC and currently a professor at the University of Michigan telling The Detroit News that automakers on the whole “...will be delighted to have Chrysler just die and take 1.5 million units out of the industry, which is about what the excess is."

Of course, reducing capacity would mean plant closures and even more job losses at Chrysler plants in the U.S. and Canada, as well as the slow elimination of white collar jobs in Auburn Hills, where The Detroit News reports morale is low.

They still have hopes of a merger with French automaker Renault, which also owns a majority stake in Nissan. Such a deal makes a great deal more sense if the ideal was to maintain the Chrysler, Dodge and Jeep brands, as Chrysler's retail outlets could make a convenient gateway for Renault to reenter the North American market,

....but the same can't be said for Hummer. (Photo: Trevor Hofmann, Canadian Auto Press)

while the three automakers complement each other from a product perspective, with Renault and Nissan offering strong small car lineups and very competitive midsize models, while Chrysler builds best-selling minivans plus competitive SUVs and trucks. Still, with today's global downturn it is unclear if Nissan is still interested in Chrysler, or even whether they could pull the finances together if they wanted to. The GM deal is more likely.

While Mopar fans will no doubt shudder to hear of such a prospect, Cerberus can't be blamed for wanting to cut its losses and dump the troubled automaker, but the abovementioned scenario is only one of many topics being discussed between the two businesses, sources familiar with the talks told The Detroit News.

One key ingredient on the table is shared ownership between GM and Cerberus in GMAC Financial Service. GM sold 51-percent of GMAC to Cerberus in 2006, and sources say that the private equity firm wants all of it. Once the financial division of GM, GMAC ventured into the mortgage market, a move that ironically kept the Detroit automaker in the black a number of years ago, despite the current downturn in real estate lending. GM is at odds with Cerberus about GMAC, however, wanting to realign the company's focus on the auto business for obvious reasons.

No matter what happens behind closed doors between General Motors and Chrysler's custodial parents Cerberus Capital Management, one thing is for certain, the auto industry is about to undergo dramatic change. Somehow, somewhere in the neighborhood of 1.5 million new vehicles need to be removed

Renault would make a better partner for Chrysler, if the French automaker could make it happen. (Photo: Renault)

from the North American market alone, and their removal is either going come from the elimination of a major player like Chrysler LLC, or the slow and painful attrition of sales felt by numerous automakers.