Chrysler and General Motors, two of America's biggest car manufacturers, have reportedly resumed merger talks in effort to rescue their ailing businesses.
According to an article in the Wall Street Journal, executives have rekindled negotiations after Cerberus Capital Management LP, the majority owner of Chrysler, signalled that it is willing to part with some of its stake in the carmaker.
Talks began between the two companies earlier this year to join forces, so that they could survive as the US car industry faces collapse in face of the economic downturn. US auto sales have dipped to their slowest rate in 26 years. But, despite the need for urgent action, financing emerged as an obstacle.
The fresh merger talks come as the Bush administration is considering new ways to help the automakers after Congress failed to reach a deal on $14bn in loans for GM and Chrysler. The funding for loans was expected to come from the $700bn Wall Street rescue fund, but many Republicans have objected.
The bid to reboot talks are likely to signal to the government that the two firms are willing to co-operate in restructuring the stricken industry. US car makers have repeatedly stressed that without a loan package, the industry could collapse, leading to millions of job losses and devastating effects for the country's already crumbling economy.
GM has said that it desperately needs $4bn to survive through the end of this month and that $10bn could carry the company to the end of the first quarter of 2009. Chrysler has said that $4bn would allow it to avoid bankruptcy and stay in business through the quarter.
The president is hoping to make an agreement with GM and Chrysler and Ford Motors – the other manufacturer in the Detroit Big Three – before Christmas, according to the Wall Street Journal.
Ford has already taken dramatic action and applied for a $9bn line of credit, but says it has enough cash to make it through 2009.
Reorganisation plans, if agreed upon, could free some of the $14bn emergency loans and help GM and Chrysler stay afloat for a little longer.
The car makers are understood to have provided Hank Paulson, the treasury secretary, with a vast amount of documents detailing contracts, payment schedules, production plans and payrolls, to help financial officers come up with a plan.
Talking to CNBC yesterday, Paulson said the bail-out talks were now his main focus but declined to reveal whether any rescue plan would be promised before next Thursday.
Negotiations continued even after Chrysler announced yesterday that it would shut all 30 of its factories for a month or more, as unsold vehicles pile up in showrooms. The move echoes action by GM, while Honda and Ford have decided to cut back production.
The economic slump has hit the global auto market and UK car makers have also suffered. Last night, business secretary Lord Mandelson said he was in intensive talks about a bail-out for Jaguar Land Rover but added the primary responsibility for the company lay with its Indian parent company, Tata.
The head of a Japanese auto-industry lobby said today that he saw Japan's car sales hitting a 31-year low next year. "It is difficult to gauge where the bottom is [for the global car market]," Satoshi Aoki, chairman of the Japan Automobile Manufacturers Association said. "What seems clear is that a recovery isn't around the corner, and I have no idea when we'll see one."
