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By Kevin Krolicki and Jui Chakravorty Das
DETROIT/NEW YORK (Reuters) - General Motors has had talks with smaller rival Chrysler LLC about a merger that would combine the No. 1 and No. 3 American automakers at a time when both are struggling to cut costs and shore up cash, according to a source briefed on the matter.
Separately, Ford Motor Co, plans to sell shares from its $1.4-billion stake in Japan's Mazda Motor Co, a second source said.
Barron's reported that GM was preparing to approach the U.S. Federal Reserve about borrowing money from the central bank's discount window because of the logjam in credit markets that has shut it out of other borrowing.
The moves come as all three Detroit-based automakers are struggling with a plunge in U.S. sales to 15-year lows and facing tough questions from investors and creditors about whether they have the cash to ride out a deepening downturn.
Analysts said urgent steps by all three U.S. automakers to shore up cash could be expected as the global financial crisis begins to dampen auto sales in what had been fast-growing markets in Europe, Asia and South America.
But they also questioned whether an outright merger with Chrysler could serve GM's interests.
"On the surface, it frankly doesn't make sense," said Aaron Bragman, an analyst with Global Insight. "The acquisition of Chrysler wouldn't solve and problems GM has and would only make some existing ones worse."
Representatives of Cerberus Capital Management, the private equity firm that owns an 80.1-percent stake in Chrysler, were not immediately available for comment.
Chrysler declined comment. GM declined to comment on whether it had any talks with Chrysler but said talks with other automakers were a routine part of business.
"GM officials routinely discuss issues of mutual interest with other automakers," said GM spokeswoman Renee Rashid-Merem. "As a policy, we do not confirm or comment publicly on those private discussions, which in many cases, do not lead anywhere."
Cerberus is also in exploratory talks with other parties, including Renault-Nissan, to sell Chrysler, the source said.
But any deal would hinge on the completion of the sale of Daimler AG's remaining 19.9-percent stake in Chrysler to Cerberus, the source said. Cerberus last month said it had approached Daimler to buy that remaining stake.
Chrysler's private owners and GM have had "very early" and "very exploratory" talks about a merger, the source said.
The talks between GM and Cerberus, first reported by the New York Times and the Wall Street Journal, began more than a month ago and are not certain to produce a deal.
The Journal said that Cerberus had proposed a swap of assets with GM that would give the private equity firm full ownership of finance company GMAC.
In exchange, GM would get the loss-making auto operations of Chrysler, the newspaper said.
Cerberus currently owns 51 percent of GMAC, GM's former captive finance company which has been hobbled by its exposure to the U.S. mortgage market. GM owns the remainder of GMAC.
Global Insight's Bragman said a deal structured in that way would benefit Cerberus since the private equity firm would end up with GMAC just as a $700 billion U.S. government bailout fund to buy up distressed debt begins operations.
"They would get rid of an auto company that has weighed on their results and they would get full control of GMAC just as the government is about to come to the rescue," Bragman said.
LONG PROCESS
The reported talks between the two sides would revive discussions between Chrysler and GM about a potential merger in early 2007 when Germany's Daimler AG began the process of selling off Chrysler that culminated in a deal later that year to sell the automaker to Cerberus.
GM Chief Executive Rick Wagoner also said last year that he saw some potential for Cerberus to combine GMAC with Chrysler Financial, the finance company affiliated with the No. 3 automaker.
Analysts have questioned Chrysler's ability to survive as a stand-alone automaker, given its reliance on sales to North America for some 90 percent of its revenue.
But a combination with GM would match two companies with overlapping weaknesses, analysts said.
For one thing, both GM and Chrysler have been hurt by their reliance on sales of trucks and SUVs. For another, both have been struggling to cut union-represented production jobs in reaction to weaker U.S. sales.
"It would be taking two cash-burning companies and putting them together so they burn cash faster," said Erich Merkle, an auto industry consultant with Crowe Horwath.
Chrysler, which no longer discloses results as a private company, has also had discussions about a tie-up with India's Tata Motors and Italy's Fiat in recent months.
GM shares fell to near a 60-year low this week on fears the global financial crisis could derail its turnaround plans.
GM and Ford both ruled out on Friday seeking bankruptcy protection.
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