GM, Chrysler in merger talks - source

DETROIT (AP) -- General Motors Corp., Chrysler LLC and Cerberus Capital Management LP have held preliminary talks about a merger or an acquisition of Chrysler by GM, according to a person familiar with the talks.

Chrysler, which is 80.1% owned by Cerberus, already has a joint venture with GM making a hybrid gas-electric powertrain, and has discussed a full merger or acquisition with GM, said the person, who did not want to be identified because the talks have not been made public.

The Wall Street Journal, citing people it described as familiar with the discussions, reported that Cerberus, a private equity firm that also owns 51% of GMAC Financial Services, proposed trading Chrysler's automotive operations to GM in exchange for GM's remaining 49% stake in GMAC.

The New York Times, also citing people familiar with the talks, reported that the automakers were discussing a merger. GMAC, primarily an auto lender, also has significant mortgage lending operations that have been hit hard by the crisis in that industry.

The talks have stalled because of the recent turmoil in the financial markets, according to the Journal. Its sources said negotiations could resume if markets stabilize because both GM and Cerberus want to quickly divest the assets under discussion.

The negotiations between 100-year-old GM and 83-year-old Chrysler began more than a month ago. The Times said its sources pegged the chances of a merger being completed at "50-50."

"Without referencing this specific rumor, as we've often said, GM officials routinely discuss issues of mutual interest with other automakers," GM spokesman Tony Cervone said in an e-mail.

"The company is looking at a number of potential global partnerships as it explores growth opportunities around the world," Chrysler said in an e-mailed statement issued Friday night. "Beyond those partnerships already announced, however, Chrysler has not formed any new agreements and has no further announcements to make at this time."

Making history. 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. This would not be the first time Detroit's automakers have explored mergers.

GM talked with DaimlerChrysler AG in 2007 about acquiring Chrysler before Cerberus made a deal to acquire most of the automaker, but the talks fell through when GM decided it should concentrate on cost savings and efficiencies by globalizing its own operations.

In 2005, GM and Ford Motor Co. reportedly held talks regarding a potential business combination. Cerberus acquired its GMAC stake in 2006 for $14 billion and bought 80.1% of Chrysler from Daimler AG in August 2007 in a $7.4 billion deal.

Cerberus and Daimler confirmed last month they are in talks for Cerberus to acquire Daimler's remaining Chrysler stake.

The auto industry has been hit hard in recent weeks by the effects of the credit crisis, prompting GM and Ford to issue statements Friday to dispel the notion that they might be headed for bankruptcy.

GM and Ford shares were battered with the rest of the stock market this week, falling to lows not seen in decades. GM (GM, Fortune 500) shares lost about half of their already-depressed value during the week, closing at $4.89 on Friday. Ford shares fell similarly, ending the week at $1.99.

GM said Friday, in response to the stock price, that it is nor considering a bankruptcy filing.

"Clearly we face unprecedented challenges related to uncertainties in the financial markets globally and weakening economic fundamentals in many key markets, but bankruptcy protection is not an option GM is considering," a company statement said.