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Quick Hits: Marriage of Convenience for Chrysler, GM?


Brief scrutiny of today's headlines.

The sharp decline in auto sales may result in industry consolidation.

This shouldn't be news to any semi-conscious investor, but consolidation may play out like a soap opera against declining sales throughout the auto industry.

Speaking on CNBC, Chrysler CEO Bob Nardelli said the company is looking for partners, but declined to comment on talks with General Motors (GM).

Last week, GM discussed merger or acquisition with Cereberus Capital Management, a New York private-equity firm that owns about 80% of Chrysler. Cereberus bought its stake in Chrysler in 2007 from Daimler (DAI) for about $7.4 billion. Cereberus seeks to acquire the balance of the automaker's shares.

The Wall Street Journal reports that potential lenders want to see the deal completed and GM wants to wrap it up quickly - possibly by the end of October. JPMorgan Chase (JPM) is one of the largest holders of Chrysler debt, as well as one of GM's key lenders.

General Motors seeks to raise additional capital as it faces what looks like huge losses in the economic downturn. Nevertheless, the automaker says no deal is imminent.

Some analysts question how GM would benefit from such a deal. But Chrysler says it has about $11 billion in cash, a key consideration in the credit crunch. GM is spending about $1 billion each month. Some analysts predict it will be down to about $14 billion left sometime next year, the minimum needed to assure smooth operations.

GM's stock has lost about a third of its value and recently traded at the lowest level since 1950. Chrysler's sales are down about 25% this year. GM's sales are down about 18%.
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