GM Held Talks With Ford Before Turning to Chrysler

Before General Motors began exploring a possible merger with Chrysler talks that first came to light on Friday— G.M. proposed a similar deal with its other cross-town rival, the Ford Motor Company, two people with knowledge of the talks said Saturday.

General Motors world headquarters, Detroit, Michigan
General Motors world headquarters, Detroit, Michigan

G.M. executives approached Ford about a possible merger in July, but Ford rejected the idea and ended the discussions last month, these people said.

After Ford decided to remain independent amid an increasingly difficult auto market, G.M. turned its attention to Chrysler. For the last month, it has been in preliminary merger talks with Chrysler’s owner, the private-equity firm Cerberus Capital Management.

A deal is not certain, but people with knowledge of the talks described the chances of it happening as “50-50.”

The behind-the-scenes maneuvering illustrates the mounting pressure on the Big Three Detroit automakers to solve their enormous financial problems and stave off bankruptcy.

A G.M.-Chrysler merger, if it did occur, would have a wide-ranging impact on the American auto industry at one of the most tumultuous points in its history.

Both G.M. and Chrysler are losing market share in the United States and burning through billions of dollars in cash while they scramble to revamp their unprofitable North American operations.

But they may be running out of time. With auto sales at their lowest level in 15 years, both companies face the possibility of bankruptcy before their turnaround efforts take hold.

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“These are not normal times,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. “The biggest problem is cash and whether these companies will have enough to survive this downturn.”

For G.M., which lost $15.5 billion in the second quarter alone, the strategy for survival appears to center on pursuing a mega-merger.

In July, G.M. approached Ford with a proposal to combine the operations of the two biggest American automakers. The talks involved several meetings between G.M.’s chairman, Rick Wagoner; its president, Frederick Henderson; Ford’s executive chairman, William C. Ford Jr.; and its chief executive, Alan R. Mulally, people with knowledge of the process said.

Ford broke off the talks in September, these people said. Mr. Ford and Mr. Mulally were said to have concluded that their company had a better chance to reorganize on its own than in tandem with another automaker.

A Ford spokesman, Mark Truby, declined Saturday to confirm the discussions with G.M., but he said Ford was determined to remain independent.

“We would not comment on any private business discussions, including discussions with other automakers and suppliers,” Mr. Truby said. “What we can say is that we are convinced our best opportunity is to continue to integrate Ford and leverage our global assets. That remains Ford’s focus.”

Talks between G.M. and Cerberus may take weeks to complete, and they could still be derailed by price issues and the challenges of integrating G.M. and Chrysler.

Cerberus is also talking with other automakers about a potential Chrysler deal, including Nissan Motor of Japan and Renault of France, people with knowledge of the situation said.

G.M. and Cerberus have held numerous meetings involving senior management of both companies but have yet to delve deeply into each other’s financial books and sales projections.

Cerberus appears committed to linking Chrysler to other auto companies, either through joint ventures, alliances or an outright merger or sale.

Chrysler executives have already struck some deals on products and manufacturing plans with competitors, including a deal with Nissan to provide a pickup truck to it in exchange for Nissan building a small car for Chrysler.

A Chrysler spokeswoman, Lori McTavish, declined Saturday to discuss any merger talks with G.M. but reiterated the company’s strategy to grow through partnerships.

“Chrysler, as a matter of policy, does not confirm or disclose the nature of its private business meetings,” Ms. McTavish said. “As we have said, the company is looking at a number of potential global partnerships as it explores growth opportunities around the world. Beyond those partnerships already announced, however, Chrysler has not formed any new agreements and has no further announcements at this time.”

Chrysler has struggled in the United States market since Cerberus acquired an 80.1 percent stake in the company for $7.4 billion last year from its previous owner, the German automaker Daimler.

Chrysler has cut thousands of jobs, slashed production and closed plants to try to balance the impact of a 25 percent drop in United States sales so far this year. But Chrysler has a substantial amount of cash, which probably would be of major interest to G.M.

As a privately held company, Chrysler is not required to disclose its financial results. In August, however, Cerberus said that Chrysler had about $11 billion in cash reserves.

Andrew Ross Sorkin contributed reporting from New York.