Chrysler Needs a Quick Fix, But a GM-Chrysler Merger Might Not Be It

General Motors, Ford Motor Co. and Chrysler LLC need to do something to address the credit crisis and the drop in U.S. auto sales, but rumored talks of a GM-Chrysler merger are probably not the answer.

Whether to call it a "merger," a "rescue," or "mutual aid" is debatable. All of the Detroit 3 are in crisis mode, with analysts worried whether they have enough cash make it through the present downturn.

But Chrysler is clearly the one that's most on the ropes. Chrysler has suffered the biggest drop-off in U.S. auto sales this year, down 25 percent year to date through September, to around 1.2 million, according to AutoData. That's fewer sales than GM, Toyota or Ford, in that order, and only about 3,000 units more than Honda.

Chrysler has the heaviest dependence on trucks, at about 72 percent of Chrysler's total U.S. sales, versus about 48 percent for the U.S. market overall.

Chrysler also has the most exposure to the slumping U.S. market. Ford and GM have a much greater ability to offset slow sales in the United States with sales in other global markets, and to spread costs per unit across a bigger volume.

Analysts at Standard & Poor's said on Oct. 13 that of all those threats to Chrysler, the credit crisis and the drop in sales go to the head of the line.

"Our most serious concerns regarding Chrysler are more immediate: the pressure on the company's liquidity during 2009 from the rapidly weakening state of most global automotive markets and the constrained state of the capital markets," the firm said.

A GM-Chrysler "combination or alliance" could save money, but it would incur what Standard & Poor's diplomatically called, "massive execution risks." In other words, a disaster unless they do it exactly right.

For now, the ratings firm did not change its "B-" ratings on GM or GMAC; nor its "CCC+" ratings of Chrysler and its captive finance company.

"We would be skeptical that a GM-Chrysler transaction could easily address our primary concern by resulting in a substantial increase of current liquidity for the parties involved," Standard & Poor's said.