As rumours continued to swirl today about the future of troubled automaker Chrysler LLC, one analyst said there's a chance the U.S. government could force a merger between the company and rival General Motors.
Chrysler said in its restructuring plan submitted to the U.S., Canadian and Ontario governments last week that it still believes the best option for the auto industry "from a financial and operational perspective" is a merger between the two carmakers, which have both asked for billions in government loans to help them restructure amid slumping sales.
Chrysler and GM discussed the possibility of a merger late last year as the global financial crisis and tight credit markets took their toll on sales and carmakers' balance sheets.
But Chrysler said in its restructuring plan that GM has since taken that option "off the table."
Bill Pochiluk of industry adviser AutomotiveCompass said Chrysler seems to want to show they are still open to the idea of a merger between the two companies.
"I think it was put in their plan to basically say they're still open to that discussion if somebody wants to bring that up. For example, (President Barack Obama's automotive) task force," Pochiluk said.
"At this stage there's the funding equivalent of sticker shock. Every time we look at the numbers they're substantially larger than we've seen before and we probably haven't seen all the numbers yet," he added.
"So we have to begin to ask the question, what's really going to happen? Will there be a forced merger situation to bring the GM and Chrysler assets into one tank, then to fund that in a very controlled way?"
Meanwhile, a Chinese business newspaper reported today that Beijing Automotive Industry Holding Corp. might bid for some of Chrysler's assets.
The state-run China Business News, citing an unnamed Beijing Automotive executive, said the Chinese automaker wants to acquire plants and technology to build up its own brand vehicles. The Beijing city government might also provide support for such a deal, it said.
But Tony Faria, an automotive industry specialist at the University of Windsor, said the likelihood of this happening is “very low."
"Most of the Chinese companies have been mentioned as firms that might purchase some of the assets of some of the companies that are up for sale, like the Hummer operation from GM and the Volvo operation from Ford," Faria said.
"For the most part, whenever those rumours come up, the Chinese companies pretty quickly deny them and indicate that they're not yet that ready to move into the North American market."
Faria said he believes the most likely possibility for Chrysler is still a proposed alliance with Italian automaker Fiat.
The two companies said last month that they have signed a non-binding agreement for a strategic alliance that would give Fiat a 35 per cent stake in Chrysler.
Under the proposed alliance, Fiat wouldn't invest cash in Chrysler but would provide access to its successful small-car platforms, as well as to its more environmentally friendly and fuel-efficient engines.
"That would be a far more reasonable combination of companies (than a merger between Chrysler and GM)," Faria said.
"The only problem is Fiat of course does not want to bring any cash to Chrysler at all, and Chrysler certainly does need cash, so for any alliance to happen, Chrysler is going to have to get the cash they're requesting from the U.S. and Canadian governments."
Chrysler provided only a sketchy outline of its Canadian restructuring plan Friday, sending a brief covering letter to the federal and Ontario governments that added little to plans previously submitted to the new Obama administration in the United States.
The company has asked for $1 billion in emergency loans in Canada, but federal Industry Minister Tony Clement said the government needs more information before it can hand over the money in good conscience.
He said some additional material arrived on the weekend and will be analyzed by officials.
Chrysler is currently owned 80.1 per cent by Cerberus Capital Management LLP, which acquired its stake for $7.4 billion in 2007 as Germany's Daimler AG dissolved a "merger of equals" made in 1998 between Daimler-Benz and Chrysler Corp. Daimler still owns about one-fifth of Chrysler LLC, which is a privately held company.
In Canada, Chrysler employs about 11,000 hourly and white collar jobs at assembly and parts plants in Windsor, Ont., and in the Toronto area.