Is GM the best partner for Chrysler?

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By now, it is an old idea. General Motors (GM) should merge with Chrysler, cut weak brands, bargain with the UAW for better pay and benefit terms, and downsize plants. Based on news reports, the companies talked about merging several month ago.

The talks fell apart and it is not clear why. GM may have believed that Chrysler's weak sales and relatively high product development costs would be an anchor dragging on a combined firm.

But there have been reports in the last two days that Chrysler's potential marriage with Fiat could fall apart. The reason is the the European company does not think that the UAW has given up enough in negotiations to offer Chrysler any real chance of being profitable. Fiat may become frustrated and simply walk away.

GM cannot walk away from a merger with Chrysler if the Treasury want to see a deal done in exchange for putting more capital into the two companies. If the government can force the CEO of a public company, in the case Rick Wagoner, to leave his job, it is a sign that the government can do almost anything with the two car firms. Its Sword of Damocles is that it can let both the No.1 and No.3 American car companies go into bankruptcy without the support of federal money.

A GM-Chrysler merger has become an attractive alternative again, but just in the last few days. GM may not get all of the concessions it needs from creditors which means that its cost of doing business will not drop enough to keep it out of bankruptcy court. Chrysler may lose Fiat's interest before the end of the month.

A merger means job losses, perhaps 30,000. But, it would give the combined company a reasonable chance to do well when the car markets begin to turn up. And, in Chapter 11, the firms are likely to cut people anyway.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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