Merger between the two automotive giants a step closer to reality
29 October 2008

A massive industrial merger between General Motors and Chrysler is close to becoming reality, with both companies appealing to the US government for a huge cash injection.

GM insiders are poised for ‘a major announcement’ in the days immediately prior to the US presidential election on 4 November, Autocar can reveal.

Last night reports from the US claimed that GM chief executive Rick Wagoner had gone to US Treasury secretary Hank Paulson to ask for a government bail-out of $10bn.

GM may have to agree to keep as much of Chrysler’s existing operation in business as possible, if its to get the money. However, the new US president is likely to face the controversy of a Government bailout partly paying for factory closures and redundancies.

Financial pressure on the two carmakers was significantly increased when they were downgraded by credit rating agencies. The upshot is that borrowing money from the credit-crunched markets has become near impossible for the ailing carmakers.

The GM and Chrysler bosses are also dealing with potential knock-on affects to the component supply base should one of the ‘Big Three’ makers fail or a supplier collapse as a result of slashed car production.

The collapse of a supplier could halt production across the US and elsewhere: just one component out of thousands halting production lines. The rescue of an insolvent component maker could also take weeks, causing production havoc and costing millions in lost production.

The race to prevent Chrysler from collapsing has taken on a new urgency as the downturn hits new car sales even harder than expected.

Renault-Nissan boss Carlos Ghosn added his voice to the seriousness of the situation, predicting that the "worst is yet to come." He said he expected the sales collapse to carry on into 2010 and possibly further into the future.

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