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Friday, October 10, 2008
GM, Chrysler in Merger Talks - Reports
Ken Sweet
FOXBusiness
General Motors and privately-held Chrysler, two of the most iconic names in American industry, are in preliminary talks about a possible merger, according to reports in The New York Times and The Wall Street Journal.
The possibility of the two struggling automakers merging would be a historic move in a time of a hurting economy and tight credit markets.
According to the Times, talks between GM (GM) and Chrysler began nearly a month ago and talks will continue for several more weeks if they progress at all. The newspaper, citing anonymous sources, said a merger between Chrysler and GM was “50/50” as of Friday evening.
Private equity firm Cerberus Capital Management owns Chrysler. Calls and e-mails into GM and Cerberus were not immediately returned.
The Journal reported that Cerberus proposed selling GM all of Chrysler's automotive operations, in exchange for GM selling Cerberus its remaining 49% stake in GMAC.
There are a multitude of logistical, legal and financial hurtles that a merger between two of Detroit’s Big Three would have to go through for a merger to make financial sense.
Labor unions for both companies would have to sign off on the merger, possibly similar to the recent mergers between major airlines. There also the dozens of car and truck factories scattered across the nation and the world that would have to be consolidated.
According to the Journal, GM believes they could save as much as $10 billion in costs with a merger with Chrysler.
GM’s stock fell to nearly a 60-year low this week after rating agency Standard & Poor’s said it was looking into downgrading GM’s long term debt rating. With the credit markets in such bad shape as they are, and GM’s debt rating poor already, a rating downgrade would be quite detrimental to the survival of GM.
Chrysler has had to shut factories in recent months because of a lack of demand for the car company’s trucks and minivans. The company has been shopping itself to a few different global auto makers for the past few months, including Nissan and Renault.
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If you¿re like the vast majority of the population, buying a home is the largest personal investment you will ever make. You're buying something that¿s many times your yearly salary with the intention of holding onto that home for many years.
The bank you're going to get the money from to buy that home knows that, too. And if you're going to get a mortgage on a home, the bank wants to know how you're going to pay for said house.
Usually, you give a lot of paperwork to the bank, so the bank can tell if you're able to afford the house or not. You give them bank statements, credit card statements, letters from your employer stating your salary, tax returns, etc.
But, what happens if you may not be the perfect candidate for the home of your dreams? Or, you're buying too much home (the bank thinks you can afford a $200,000 home, you want a $230,000 home). Or, you don't have the money for a down payment. Or, you haven't paid your bills on time in the past. Or, the documents of how you make your salary are not 100% available.
Enter the subprime mortgage. Subprime mortgages are loans given by banks to people who may fall under any one of those above conditions, or others. Why would anyone want a subprime mortgage? Well, homebuyers get subprime mortgages because they get to buy the home they want. Banks give subprime mortgages because they can charge people more money for that mortgage. Remember, the difference in interest rates on a $200,000 or $300,000 home can mean the difference between hundreds of dollars in interest payments.
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The playbook goes out the window, though, when home prices don't increase. Then homeowners run the risk of defaulting and banks lose money. At its worst, homeowners can lose their houses.
If you¿re in the market for a home, and the banker says you qualify for a subprime mortgage, it probably means you need to provide more documentation of how you¿re going to pay for that house. Or, you may be buying too much home. Talk with your banker about why you qualify for a subprime mortgage, and try to fix it.
