GM shares jump; Chrysler in talks with others

By Soyoung Kim and Poornima Gupta

DETROIT (Reuters) - General Motors Corp shares closed up 33 percent on Monday on signs that the No. 1 U.S. automaker had explored options ranging from a merger with Ford Motor Co or Chrysler to federal funding in order to ride out a brutal downturn in sales.

But despite the rally, signs of distress in the auto market mounted with analysts seeing no signs of a rebound in U.S. vehicle sales in October.

GM plans to close two plants, including its oldest and largest assembly plant in Wisconsin, by the end of the year and a stamping plant in Grand, Rapids, Michigan, by the end of 2009.

Its affiliated finance arm GMAC also announced that it is tightening its consumer auto lending standards.

Forecasting service CSM Worldwide on Monday said it expected auto production in North America in 2009 to drop 9 percent from the output levels of this year to an 18-year low of 11.8 million units.

U.S. industrywide sales this month is expected to be down as much as 30 percent, according to Citigroup analyst Itay Michaeli.

Analysts said the latest industry developments, including the more recent merger talks between GM and Chrysler, underscored Ford's position as the strongest of the three U.S.-based automakers, with the most time to complete its own turnaround plan. [ID:nN13454060] Ford shares closed up 20 percent.

But even after the rally, GM and Ford shares remain at near-historic lows. Ford shares have declined 65 percent since the start of the year, while GM shares have lost 74 percent of their value.

Privately-held Chrysler LLC Chief Executive Bob Nardelli said the automaker was talking with third parties to explore tie-ups amid a global credit crunch that he said presented a more serious challenge than high gasoline prices.

GM has ruled out a bankruptcy filing, but faces scrutiny over whether it has the cash to survive a downturn that began in the United States and is spreading to Europe and Asia.

"I think they will do everything possible to avoid a bankruptcy," Crowe Horwath analyst Erich Merkle said. "A bankruptcy won't help GM or any other automaker. That would be unthinkable."

Analysts said a merger might allow the top U.S. automaker to boost its cash holdings and give it bargaining power to seek new concessions from the United Auto Workers union.

GM shares, which traded near 60-year lows last week, jumped as high as $8.03 on Monday before falling back to end at $6.51. Ford closed up at $2.39 after rising as high as $2.95.

The gains came amid a rebound in the broader market tied to steps by the government to stabilize the banking system and after news of the merger talks surfaced over the weekend.

People familiar with the situation said GM was discussing a combination with Chrysler, which is controlled by private equity firm Cerberus Capital Management.