GM in hunt for Buffett-style capital injection

General Motors is seeking a sizeable capital injection from outside investors as a possible alternative to a deal with Chrysler, the carmaker’s smaller Detroit-based rival.

Such an investment would be along the lines of Warren Buffett’s recent purchases of minority stakes in General Electric and Goldman Sachs.

While private investors are searching for ways to deploy capital through minority investments, many such deals, including the capital infusion by TPG into Washington Mutual, have struggled or failed.

One banker questioned GM’s chances of finding an outside investor. “I just don’t think most private equity guys are that enamoured of the auto industry and I don’t know how you could try to secure it in some way,” he said.

GM is exploring several options to shore up its finances in the face of slumping sales in the US and Europe and an accelerating cash drain. Cerberus, the New York buy-out group, is seeking a buyer or partner for its controlling stake in Chrysler, which it bought from Germany’s Daimler last year.

The Renault-Nissan group has also studied a closer relationship with Chrysler that would fall short of an acquisition.

Nissan already has three manufacturing agreements on small cars and pick-up trucks with Chrysler and is discussing others for vehicles such as mid-sized cars.

“If an opportunity comes up that made sense for us, we would entertain it,” a person familiar with Nissan’s thinking said yesterday.

Himanshu Patel, analyst at JPMorgan, said sliding sales in North America and Europe would make 2009 “uniquely painful” for the Detroit carmakers. Mr Patel expects GM’s cash outflow to reach $12.4bn next year compared with his earlier estimate of $7.9bn. Such a drain implies that GM will breach the mid-point of its minimum required cash reserves of $11bn-$14bn by mid-2009.

Many industry experts have questioned the benefits of a tie-up between GM and Chrysler, pointing to their overlapping vehicle line-ups and dealerships.

Rod Lache at Deutsche Bank said: “In a worst case scenario, the cannibalisation of GM and Chrysler products could negate cost savings, leaving GM with $16bn more debt, three more brands and 3,500 more dealers.”

A person close to the talks said: “There are any number of issues on that deal that have to be grappled with. Price would be one, financing would be another, governance could be a third.”

The possibility has also been raised of GM seeking a government bail-out or filing for bankruptcy protection

These two avenues are considered unlikely for the time being although Detroit carmakers’ debt securities are already trading at bankruptcy levels.

GM insisted this month that bankruptcy was not an option.

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