As General Motors Corp pushes ahead with talks to acquire Chrysler, uneasy suppliers and workers are bracing for a deal that would combine two struggling automakers and cost tens of thousands of jobs.
But as GM struggles to line up financing for an acquisition, attention has turned to an even more uncertain prospect: What happens if the controversial deal falls apart?
For Chrysler, owned for the past year by Cerberus Capital Management, the options are dwindling, according to bankers, consultants and experts on corporate strategy.
If GM pulls out, people briefed on the talks expect Cerberus to seek another buyer for the maker of Jeep, Dodge and Chrysler models. Failing that, Cerberus would likely look to break up Chrysler and sell whatever assets it could, they said.
"Selling off assets will only become strategy if GM is off the table and they have not found any other buyer," said one person familiar with the matter, who estimated the GM deal now has about a 1-in-3 chance of success because of difficulties in securing outside funding.
Another person familiar with Chrysler's planning said the automaker had drawn up scenarios that would involve selling key assets like the Jeep brand, its specialty parts business Mopar and even its engineering operations if Cerberus is pushed to break up the 80-year-old automaker.
Both GM and Chrysler have declined to comment when questioned about the merger talks. Both automakers have also ruled out bankruptcy as an option as they restructure.
But analysts say the rush by GM and Cerberus toward a deal highlights the threat posed by the credit crunch as an auto sales slump that began in the US market spreads to Europe.
JP Morgan analyst Himanshu Patel said this week he expected GM to survive by raising liquidity through steps that could include getting tax-payer backed loans and selling assets. He expects GM to burn through $12.4 billion in 2009 and to post losses through 2010.
GM shares, down more than 75 percent this year, could bounce higher if a Chrysler merger appeared to ease its liquidity pressure, he said. But he added: "We increasingly view any such rally as potentially tenuous."
Cerberus founder Stephen Feinberg, who bought Chrysler in a $7.4 billion deal with Daimler AG last year, is eager to cut his exposure to the auto business and to increase his 51 percent stake in GMAC, people familiar with the talks with GM have said.
From bad to worse
One reason for Cerberus to press for a quick deal is that the private equity firm has effectively cut off investment on Chrysler's vehicle development beyond 2010, analysts said.
"Time will not be their friend," said Kimberly Rodriguez, a principal at Grant Thornton LLP, an advisory firm with a specialty in automotive restructuring.
Rodriguez estimated that 30 000 to 40 000 jobs could be lost if GM absorbs Chrysler and the smaller carmaker's supplier base would be decimated. "This is not a hit most could take," she said.
GM said on Wednesday it was exploring the sale of its own aftermarket parts business ACDelco to raise cash as it looks to raise up to $4 billion from asset sales that include its Hummer SUV line and a plant in Strasbourg, France.
Glenn Mercer, an independent auto analyst, said Chrysler's corresponding service parts business could be one of the most attractive assets the automaker has to offer.
"Even if Chrysler goes away, the cars it has sold over the last decade or so are still on the road and still need spare parts," Mercer said. "While sales would slowly dwindle down, spare parts margins are high. Arguably, the only thing making profits at Chrysler right now might be spare parts."
Tom Stallkamp, a partner at private equity firm Ripplewood Holdings and a former Chrysler executive, said the automaker still faces the problems it had before it was acquired a decade ago by Daimler.
Chrysler needs to break its reliance on the U.S. market and to find a partner to make investments in new technology, he said.
In the meantime, he said, the uncertain outcome of the merger talks presented a new difficulty for employees.
"They just need to get through this process as fast as they can," Stallkamp said.