So what will the world car industry look like by Christmas? Will we see “General Chrysler” motoring along, chewing up cash, or perhaps a transnational biggie “Chrysler/General/Renault” dominating the shrinking sales figures in the US, Europe and Japan?

A General Motors-Chrysler amalgam looks more like an option, but even then there are rising doubts in the US that it will happen, simply because the hurdles are so high in the current volatile environment.

And what about Ford, which is looking more and more like the orphan at the bottom of Detroit?

Ford’s future was thrown into more doubt overnight when the opportunistic investor, Kirk Kerkorian started unloading his 6% stake in the ailing car group at a big loss.

US brokers reckon Kerkorian sees more of an upside in gaming in Las Vegas, which is doing it tough at the moment, but not as tough as Ford and the US car industry. Las Vegas is subprime central (or rather, Nevada and neighbouring California are). He’s got the MGM hotel and casinos business and its back being the apple of his eye. Oil and gas also interests him, but if he stops and thinks about it that’s not so solid. The fortunes of those industries are outside the control of the US, and partly tied to the future of the car industry.

If the US car industry manages to survive and cut car sizes and make more efficient models and engines, oil and gas won’t look so good.

Kerkorian and his advisers have spent around two months flirting with Ford, watch the price of the company’s shares fall to around $US1.99 (Kerkorian paid over $US5 each) and decided at the first opportunity of market stability (Monday) to bail out. So he tossed out some of his stake and indicated the rest might follow.

In a statement on Tuesday, Kerkorian’s investment company, Tracinda Corporation said it sold on Monday 7.3 million Ford shares at an average price of $US2.43 each and that it intended to further reduce its holdings in the stock, including the possible sale of all its remaining shares. Tracinda said it still held 133.5 million Ford shares, accounting for 6.06% of the troubled carmaker’s outstanding shares.

Ford closed at $US2.16 this morning in New York, down 17 US cents on the day.

At that level Kerkorian will lose more than $US500 million on his Ford adventure. Still saving around $US500 million from his original $US1 billion entry cost might represent a partial win if Ford sinks much further into the mire. The money would have been borrowed, so the banks who advanced him the money will be happy, and pleasing your banks these days is more important than making profits.

Kerkorian is a three times loser in cars: he built up a 10% stake in GM in 2006 and in the 1990s tried to take over Chrysler (but walked away with money at the end).

But the talks between GM and Chrysler are grabbing the attention and there’s no certainly the deal will happen. Chrysler has $US11 billion or so in cash, but much of that is borrowed, and the question is whether the lenders to Chrysler will be comfortable with an ailing GM taking over the debt and getting its hands on the money. GM has around $US21 billion in cash, but industry analysts say it can’t let its cash reserves fall below $US12 to $US15 billion (considered to be its minimum working capital levels) because if it happened, its existing financiers would feel very nervous.

Chrysler’s owner, Cerberus, the private equity group, also owns 51% of GMAC (GM the other 49%), and it clearly wants out of cars after losing billions of its investors’ money in the two deals. If GM buys Chrysler, it has to buyout that company’s car dealers contracts: suggested cost if $US1 billion. There’s few, if any car models and equipment at Chrysler that GM wants, only the cash pile, which is shrinking by the day.

The banks, the US government (to do a deal on the pensions and health bills of both car giants) and Cerberus would have to basically fund the deal. All that to do a deal whose logic demands the extinguishing of the Chrysler name, to allow GM and the rest of the US industry a chance to survive.

Ford’s future rests with the General Chrysler. Kirk Kerkorian couldn’t wait around for that to happen (he’s over 80 years of age). If Chrysler fails, could GM go to Ford, bent steering wheel in hand, and ask once again for a deal? It was knocked back in May, but that was before the industry fell off the cliff in September’s credit freeze.

Peter Fray

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