General Motors Corp is in preliminary talks to buy Chrysler, the struggling US arm of DaimlerChrysler AG, or to strike a strategic alliance with the rival vehicle maker, sources familiar with the situation said on Friday.
There was deep scepticism on Wall Street about whether such a merger made sense for GM and whether it could ever happen.
An outright takeover of the Chrysler Group by GM would risk complicating the turnaround efforts of both companies, analysts said, even as it created an industry giant with a nearly 40% share of the US market.
The talks to buy Chrysler, described by a source familiar with the situation as exploratory, were first reported on Friday by the trade journal Automotive News.
Automotive News, citing unnamed sources in Germany and the United States, said the companies were engaged in high-level talks about GM buying Chrysler Group – which sells Chrysler, Dodge and Jeep vehicles – in its entirety.
One source told Reuters that GM was in preliminary talks to buy Chrysler, but added it was questionable whether GM would want Chrysler's finance business, having sold its own finance arm, GMAC, last year.
A second source said talks were ongoing between the pair over a strategic car alliance but that source had no knowledge of any further talks.
GM, the world's largest vehicle maker, and DaimlerChrysler, the world's fifth largest by global sales, declined to comment.
Speculation over a possible sale or spinoff of Chrysler has built since DaimlerChrysler chief executive Dieter Zetsche said earlier last week that all options were open for its struggling North American unit.
Analysts questioned whether GM would benefit from an outright merger with Chrysler, since both are struggling with excess production capacity, sliding sales and a heavy exposure to trucks and sport utility vehicles.
Four months ago, GM broke off talks with Renault SA and Nissan Motor Co after concluding that it would not have gained as much as the other two vehicle makers from a proposed alliance.
GM and DaimlerChrysler have an ongoing joint venture with BMW to develop a hybrid system that will be used in an upcoming version of the Dodge Durango SUV.
David Feinman, a fund manager with Havens Advisors who specialises in distressed debt, said he doubted that GM would complete a deal to buy Chrysler, the AP reports.
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