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Ford, General Motors discuss alliance

india Updated: Sep 19, 2006 10:36 IST
Reuters
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Senior executives at General Motors Corp. and Ford Motor Co. have discussed a merger or alliance that would bring together the No. 1 and No. 2 U.S. automakers, according to newspaper reports on Monday.

Citing several sources familiar with the discussions, industry newspaper Automotive News reported there were no ongoing talks between the two companies and said it was not clear earlier discussions would bear fruit.

The Wall Street Journal said Ford and GM "briefly discussed" an alliance, but had since dropped the idea with no plans for further talks.

GM and Ford declined comment.

"As we've often said, GM officials routinely discuss issues of mutual interest with other automakers," GM spokesman Brian Akre said. "As a policy, we do not confirm or comment publicly on those private discussions, which in many cases never lead anywhere."

Ford spokesman Tom Hoyt said the automaker does not comment on speculation.

Analysts said GM and Ford might benefit from a limited partnership to share costly product development costs, but questioned the logic of a full-blown merger.

Both companies are scrambling to roll out more fuel- efficient cars and car-based utility vehicles to reduce their reliance on sport-utility vehicles and pickup trucks, which have emerged as the weakest part of the U.S. auto market.

Both Detroit-based automakers are also burdened by high pension and health care costs and are working through complicated cost-savings plans involving the United Auto Workers union.

An outright merger "would be a huge rationalization issue," said AMR Research analyst Kevin Reale.

"I think they've got too much on their plate right now," he added.

To further complicate matters, GM is already in the midst of a 90-day study of a potential tie-up with Nissan Motor Co. Ltd. and Renault SA in which Nissan and Renault could buy up to a 20 percent stake in GM.

That deal, urged by GM's largest individual shareholder, billionaire investor Kirk Kerkorian, has been widely viewed as a means of prodding Wagoner to speed up the company's turnaround efforts.

Both Ford and GM are restructuring North American operations to adjust to a loss of market share in their home markets.

On Friday, Ford said it would slash $5 billion in costs and one-third of its work force as it warned its auto business would not make a profit in North America for another three years. It also suspended its dividend and pledged to revamp a vehicle line-up seen as weak by analysts.

GM is in the midst of its own restructuring as it tries to recover from a $10.6 billion loss in 2005.

Turnaround efforts at the world's largest automaker have gained traction this year as 34,400 workers -- about a third of its work force -- have accepted early retirement and buyout offers. GM is also closing 12 plants.

Last year, GM and Ford agreed to jointly develop a new 6-speed transmission, which is in production in plants at both companies.

Washington, D.C. antitrust lawyer Robert Doyle Jr. said any deal to combine the two companies would get close antitrust scrutiny from the U.S. Federal Trade Commission, especially when it comes to areas such as sport utility vehicles and pick- up trucks where the two companies are both have a strong presence.

But ultimately, Doyle said, regulators would probably be convinced to approve the deal because of the dire financial condition of the two companies.

"Even though there are potential antitrust problems in those segments, the present administration likely would find the failing-firm defense plausible and permit, after a detailed and thorough analysis, the transaction to proceed," said Doyle, a partner in the firm Doyle, Barlow & Mazard.

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