DETROIT - GENERAL Motors and Chrysler have stepped up talks on a possible merger between the two ailing US automakers, sources close to the negotiations said on Friday.
A source briefed on the discussions said the talks have intensified as representatives from the companies try to see if the potential costs savings could outweigh the difficulties that come with combing firms with overlapping product lines and vastly different corporate cultures.
'There are discussions going on,' a source who asked not to be identified told AFP.
'It's the bankers that are driving this deal,' noted one Chrysler source, who also asked to be identified.
Neither company has publicly acknowledged that explicit discussions about a possible merger are under way, however they have done little to squash the rumours and leaks.
Chrysler chief executive Bob Nardelli said on Friday that the number three US automaker has been open about looking for new partners and alliances and that the time is ripe for consolidation.
'If you look at the US industry... it certainly creates an environment for consolidation where you can get synergies of productivity that will allow you to be more competitive not just here in the US but on a global basis,' Mr Nardelli told CNBC news.
But sources cautioned that a deal could be a long time coming, if it happens at all.
'Whenever you get into these things, they're always more complicated than they seem,' one observer from a third automaker told AFP.
For GM, the key to the deal is getting access to an US$11 billion (S$16 billion) cash horde now in Chrysler's hands and in finding a way to trim costs quickly.
A deal also would give GM access to Chrysler's share of the US$25 billion in loan guarantees recently approved by the US Congress.
The major stumbling block is the need for costly consolidation of dealers, which could also become virtually a poison pill, according to Mr Jim Hall, an analyst with 2953 analytics.
The merger talk also is being driven by a sharp downturn in US car sales and tightening credit, which has frozen millions of buyers out of the market and also made it harder for automakers to borrow money to keep their plants running amid massive losses.
Mr Jeff Schuster, an auto analyst with JD Power & Associates, estimated that overall US car sales could dip to an annual rate of just above 11 million units, which would be the lowest annualised rate since the steep recession of the early 1980s. -- AFP
