GM pushes ahead with talks to buy Chrysler: sources

By Kevin Krolicki

DETROIT (Reuters) - General Motors Corp is pushing ahead with talks to acquire Chrysler LLC in a deal that the automaker sees as a way to boost its cash position at a time when it has been shut out of debt markets and its own revenues are tumbling, sources said.

The negotiations involving Cerberus Capital Management, Chrysler's private equity owner, have intensified in recent days and are moving closer toward a conclusion, according to people briefed on the talks who asked not to be identified.

The prospect of merging Chrysler and GM has been viewed as a deal of desperation by most analysts since both automakers are losing money and are saddled with a cash-draining surplus of American dealers, workers and plants.

But GM executives believes the automaker could clinch a deal that would give it a share of Chrysler's remaining cash while allowing it to cut costs quickly, the sources said.

Although it does not report financial information, Cerberus has said Chrysler ended June with $11.7 billion.

Chrysler has 14 assembly plants and the expectation is that many of those would be in danger of being shut if it merges.

Once the deal closes, GM is only interested in keeping Chrysler plants where the No. 3 U.S. automaker has made significant investments in retooling, the sources said.

That could include Chrysler's truck plant in Saltillo, Mexico, the Jefferson North Jeep plant in Detroit and its Belvidere, Illinois car assembly plant, one source briefed on the talks said. The sources were not authorized to discuss the talks since the companies are saying nothing on the record.

But such a deal would involve the loss of thousands of jobs, deepening a slump in rust-belt states like Michigan and Ohio that has been a key issue for both presidential candidates.

It would also mean the end of Detroit's "Big Three," sending the curtain down on Chrysler after a turbulent 80-year run that saw it lurch from booms to busts and back while setting smart designs with products like the first minivans and the 300 sedan.

"This would basically mean the end of Chrysler," said Global Insight analyst Aaron Bragman.

GM could not be immediately reached for comment. Cerberus and Chrysler had no comment.

UNCERTAINTIES ABOUND

It was not clear how Chrysler's obligations to a health-care trust affiliated with the United Auto Workers union or how Chrysler creditors representing $9 billion in debt would be treated under a merger with GM.

Sources familiar with the thinking of Cerberus have said the private equity firm wants to keep a stake in any merger of Chrysler with another automaker.