Options scarce if GM-Chrysler merger talks fail

By Kevin Krolicki

DETROIT (Reuters) - As General Motors Corp (GM.N) pushes ahead with talks to acquire Chrysler LLC, uneasy suppliers and workers are bracing for a deal that would combine two struggling automakers and cost tens of thousands of jobs.

But as GM struggles to line up financing for an acquisition, attention has turned to an even more uncertain prospect: What happens if the controversial deal falls apart?

For Chrysler, owned for the past year by Cerberus Capital Management, the options are dwindling, according to bankers, consultants and experts on corporate strategy.

If GM pulls out, people briefed on the talks expect Cerberus to seek another buyer for the maker of Jeep, Dodge and Chrysler models. Failing that, Cerberus would likely look to break up Chrysler and sell whatever assets it could, they said.

"Selling off assets will only become strategy if GM is off the table and they have not found any other buyer," said one person familiar with the matter, who estimated the GM deal now has about a 1-in-3 chance of success because of difficulties in securing outside funding.

Another person familiar with Chrysler's planning said the automaker had drawn up scenarios that would involve selling key assets like the Jeep brand, its specialty parts business Mopar and even its engineering operations if Cerberus is pushed to break up the 80-year-old automaker.

Both GM and Chrysler have declined to comment when questioned about the merger talks. Both automakers have also ruled out bankruptcy as an option as they restructure.

But analysts say the rush by GM and Cerberus toward a deal highlights the threat posed by the credit crunch as an auto sales slump that began in the U.S. market spreads to Europe.

JP Morgan analyst Himanshu Patel said this week he expected GM to survive by raising liquidity through steps that could include getting tax-payer backed loans and selling assets. He expects GM to burn through $12.4 billion in 2009 and to post losses through 2010.

GM shares, down more than 75 percent this year, could bounce higher if a Chrysler merger appeared to ease its liquidity pressure, he said. But he added: "We increasingly view any such rally as potentially tenuous."

Cerberus founder Stephen Feinberg, who bought Chrysler in a $7.4 billion deal with Daimler AG (DAIGn.DE) last year, is eager to cut his exposure to the auto business and to increase his 51 percent stake in GMAC, people familiar with the talks with GM have said.

FROM BAD TO WORSE

One reason for Cerberus to press for a quick deal is that the private equity firm has effectively cut off investment on Chrysler's vehicle development beyond 2010, analysts said.

"Time will not be their friend," said Kimberly Rodriguez, a principal at Grant Thornton LLP, an advisory firm with a specialty in automotive restructuring.

Rodriguez estimated that 30,000 to 40,000 jobs could be lost if GM absorbs Chrysler and the smaller carmaker's supplier base would be decimated. "This is not a hit most could take," she said.