G.M. Said to Seek Merger With Ford Before Chrysler

By BILL VLASIC

DETROIT — Before General Motors began exploring a possible merger with Chrysler — talks that first came to light on Friday — G. M. proposed a similar deal with its other cross-town rival, the Ford Motor Company, two people with knowledge of the talks said Saturday.

G. M. executives approached Ford about a possible merger in July, but Ford rejected the idea and ended the discussions last month, these people said.

After Ford decided to remain independent amid an increasingly difficult auto market, G. M. turned its attention to Chrysler. For the last month, it has been in preliminary merger talks with Chrysler’s owner, the private-equity firm Cerberus Capital Management.

People with knowledge of the talks described the chances of a deal as “50-50.”

The behind-the-scenes maneuvering illustrates the mounting pressure on the Big Three Detroit automakers to solve their enormous financial problems and stave off bankruptcy.

A G. M.-Chrysler merger, if it were to occur, would have a wide-ranging impact on the American auto industry at one of the most critical points in its history.

Both G. M. and Chrysler are losing market share in the United States and burning through billions of dollars in cash while they scramble to revamp their unprofitable North American operations. But they may be running out of time. With auto sales at their lowest level in 15 years, both companies face the possibility of bankruptcy before their turnaround efforts take hold.

“These are not normal times,” said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. “The biggest problem is cash and whether these companies will have enough to survive this downturn.”

For G. M., which lost $15.5 billion in the second quarter alone, the strategy for survival appears to center on pursuing a mega-merger.

In July, G. M. approached Ford with a proposal to combine the operations of the two biggest American automakers. The talks involved several meetings between G. M.’s chairman, Rick Wagoner; its president, Frederick Henderson; Ford’s executive chairman, William C. Ford Jr.; and its chief executive, Alan R. Mulally, people with knowledge of the process said.

Ford broke off the talks in September, these people said. Mr. Ford and Mr. Mulally were said to have concluded that their company had a better chance to reorganize on its own than in tandem with another automaker.

A Ford spokesman, Mark Truby, declined Saturday to confirm the discussions with G. M., but he said Ford was determined to remain independent.

“What we can say is that we are convinced our best opportunity is to continue to integrate Ford and leverage our global assets,” Mr. Truby said. “That remains Ford’s focus.”

Talks between G. M. and Cerberus may take weeks to complete, and they could still be derailed by price issues and the challenges of integrating G.M. and Chrysler. The companies have held numerous meetings involving senior management on both sides but have yet to delve deeply into each other’s financial books and sales projections.

Cerberus is also talking with other automakers about a potential Chrysler deal, including Nissan Motor of Japan and Renault of France, people with knowledge of the situation said.

Chrysler executives have already struck some deals on products and manufacturing plans with competitors, including a deal to provide a pickup truck to Nissan in exchange for Nissan building a small car for Chrysler.

A Chrysler spokeswoman, Lori McTavish, declined Saturday to discuss any merger talks with G. M. but reiterated the company’s strategy to grow through partnerships.

“As we have said, the company is looking at a number of potential global partnerships as it explores growth opportunities around the world,” Ms. McTavish said. “Beyond those partnerships already announced, however, Chrysler has not formed any new agreements and has no further announcements at this time.”

Chrysler has struggled in the United States market since Cerberus acquired an 80.1 percent stake in the company for $7.4 billion last year from its previous owner, Daimler of Germany.

Chrysler has cut thousands of jobs, slashed production and closed plants to try to balance the impact of a 25 percent drop in United States sales so far this year. But Chrysler has a substantial amount of cash, which probably would be of great interest to G. M.

As a privately held company, Chrysler is not required to disclose its financial results. In August, however, Cerberus said that Chrysler had about $11 billion in cash reserves.

The merger talks between G. M. and Chrysler are playing out against a backdrop of radical downsizing by all three Detroit automakers. Since 2006, the companies have cut a total of more than 100,000 hourly jobs in the United States, leaving them with about 130,000 blue-collar workers in their home market.

But the companies have also experienced significant erosion in their sales in the United States. Last year, G. M. sold 3.82 million vehicles, compared with 4.81 million five years earlier. During that same period, Ford’s sales have fallen to 2.5 million from 3.57 million, and Chrysler’s sales have dropped to 2.07 million from 2.2 million. By contrast, Toyota’s sales in the United States have grown to 2.62 million last year from 1.75 million in 2002.

Andrew Ross Sorkin contributed reporting from New York.