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Car market decline spurs fresh Big 3 merger talk

PARIS (Reuters) - Record low auto sales and the financial crisis are spurring fresh merger talk about the Big Three U.S. automakers in a new global consolidation round while the sales rot is also impacting suppliers and car retailers.

Chrysler auto assembly workers leave the plant after their shift ends at the Chrysler Warren Truck Assembly in Warren, Michigan October 14, 2008. REUTERS/Rebecca Cook

Renault on Friday denied it was in talks to buy Jeep from Chrysler. People familiar with the talks said private equity firm Cerberus was in discussions to sell all or part of Chrysler LLC’s operations to the French firm and General Motors Corp as it considers a range of deals that could break up the No. 3 U.S. automaker.

General Motors, Ford and Chrysler, seeking to maximize cash returns while battling with a declining home market due to high petrol prices and an economic recession, are expected to put brands both in the United States and overseas up for sale or to seek tie-ups to slash production costs.

“There are no discussions. We are focusing on dealing with the current market situation,” Renault spokeswoman Frederique Le Greves told Reuters.

Renault has named Patrick Pelata as chief operating officer to leave more time to chief executive Carlos Ghosn to focus on strategy, including mergers and acquisitions.

Ghosn is also chief executive at Renault’s 44 percent Japanese subsidiary and alliance partner Nissan Motor.

A spokesman for Nissan declined comment on any talks.

Ghosn has never hidden his desire to see Renault return to the United Sates but the focus of expansion was on emerging markets such as China. He said recently that the situation on the U.S. car market meant that “something will have to happen” and that any big deals would be opportunity driven.

The sources said that Renault had expressed an interest in Chrysler that has spanned possibilities from an alliance to an acquisition of Jeep, widely considered to be Chrysler’s most valuable brand.

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Any deal with Renault to buy Jeep would put the world’s first and best-known sport utility brand back in the hands of the French automaker that sold it to Chrysler along with American Motors in 1987.

Chrysler assets under consideration for purchase by GM include its top-selling minivan line, a market segment Chrysler pioneered almost 25 years ago, and its truck production facilities in Mexico, one of the sources said.

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Cerberus’s talks with GM also have included the possibility of Chrysler buying GM’s remaining 49 percent share of GMAC. In one scenario, GM would swap its GMAC stake for Chrysler’s auto operations, sources have said.

The Wall Street Journal said that potential lenders were providing strong support for merger talks between GM and Chrysler as major banks such as JPMorgan Chase & Co are eager to cut their exposure to the auto sector.

Japanese media said that Ford was finalizing plans to sell shares in Mazda Motor Co to about 20 Japanese firms including insurers. Ford is considering selling some of its 33.4 percent stake in Mazda.

There are also recurring rumors that GM could sell its Saab brand in Europe. It is already trying to sell the Hummer brand.

European car sales fell 8.2 percent year-on-year in September as the fall-out from the financial crisis hit auto manufacturers hard, manufacturers’ association ACEA said.

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The credit crunch is hampering the automotive sector’s ability to finance its daily operations and invest in new technologies for greener vehicles, it said on Wednesday.

ACEA renewed a call to governments to help fund the development of fuel-efficient technologies and said capital expenditure by carmakers in the past decade had pushed them to the limit of their competitive edge.

The Dow Jones Stoxx Index for auto shares was down 3.23 percent at 6:17 a.m. EDT. Morgan Stanley cut European auto maker’s price targets while Goldman Sachs raised BMW and Renault but cut Fiat.

In Clermont-Ferrand, central France, tire group Michelin was demonstrating some of its new technologies.

Managing partner Didier Miraton told journalists that the current crisis was impacting the company as others, but Michelin was more resilient than carmakers. He said a recent decline in raw material prices from record highs would not have an impact on results until the second half of 2009.

British car retailer Inchcape on Friday issued a profit warning because the UK market is dropping fast.

Reporting by Kevin Krolicki in Detroit, Jui Chakravorty Das in New York and Sachi Izumi in Tokyo; Editing by Mike Nesbit and Hans Peters

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