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GM, Chrysler Still Just Talking

February 20, 2007

Despite skepticism on Wall Street that General Motors Corp. would follow through on its reported interest in DaimlerChrysler’s U.S. arm, rumors are still floating about.

Analysts believe that a GM takeover of Chrysler would risk complicating turnaround efforts of both automakers. News reports also said GM Chief Executive Rick Wagoner met with Daimler Chrysler Chief Executive Dieter Zetsche in Detroit this past December to discuss a possible purchase of Chrysler. Other reports said there’s been at least four meetings between the two companies. Some reports said the talks are only preliminary, while others said the talks are between the highest levels of both companies.

Quoting automotive-industry sources, a German newspaper reported on Feb. 18 that the two companies are seeking an alliance rather than a merger, and said it would be modeled after the alliance between Renault of France and Nissan of Japan. The French firm owns one-third of Nissan. The same report said it was doubtful that the world’s biggest automaker would take over DaimlerChrysler’s U.S. subsidiary outright, with both companies declining comment so far.

An alliance, the German newspaper reported, would mean that GM and DaimlerChrysler would remain separate companies while acting as a single company in product development, products and sales. One source told Reuters that GM was in preliminary talks to buy Chrysler, but added it was questionable whether GM would want Chrysler’s finance business, having sold its own finance arm, GMAC, last year.

Speculation over the possible sale of Chrysler began emerging since last week when Zetsche said all options were open for its struggling North American unit, which has experienced a slump in profitability with Americans turning away from Chrysler’s range of big vehicles in favor of imports. The German arm of DaimlerChrysler, Mercedes, is in relatively healthy condition.

Analysts, however, question whether GM would actually benefit from an outright merger with Chrysler since both are struggling with excess production capacity, sliding sales and a heavy exposure to trucks and sport utility vehicles. Four months ago, GM broke off talks with Renault SA and Nissan Motor Co. after concluding that it would not have gained as much as the other two vehicle makers from a proposed alliance.

Currently, GM and DaimlerChrysler have an ongoing joint venture with BMW to develop a hybrid system that will be used in an upcoming version of the Dodge Durango SUV.

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