Earlier in the year there were talks of the “Big Three” becoming the Big Two with Chrysler and GM merging to become one company, apparently those talks are heating up again. Earlier Cerberus Capital Management LP had stated that a combination was impractical and a distraction to from the real problem that they were facing, namely liquidity issues. However, yesterday we received news that GM (and Ford as well) were basically shutting down their production factories for about a month to save on costs and then start up again after the new year. From the article:

The renewal of the talks could be a way for Cerberus to show Washington — which is weighing a $14 billion rescue package for the auto industry — that it wants to cooperate in restructuring the industry, say people familiar with the buyout firm’s thinking. And it could offer the firm a way to protect its stakes in two distressed auto-finance companies, GMAC LLC and Chrysler Financial, which are crucial to the survival of the Detroit auto makers.

It isn’t clear what effect the renewed merger talks might have on the intricate political calculus hanging over a government rescue of the auto makers. Wednesday, Chrysler said it would suspend production at all 30 of its plants for a month starting Friday.

The interesting part about this is that it seems that what Cerberus is really trying to protect is their stake in their financing companies. I find this rather funny as I’ve said for years that the auto companies are more interested in selling you financing then they are on selling you cars. This may explain why GM and Chrysler have been making such crappy cars for so many years and why Toyota had dominated car sales for a long time (Toyota also has their own financing company, but they also make a profit on their cars).

So, is a merger a good idea? Generally I think anything that makes you more competitive and able to survive is a good idea. The big question is whether this will stave off a government bailout for the auto industry? That remains to be seen, but I am doubtful that it will. The government seems bent on giving away billions of dollars that it doesn’t have, so why not save a bankrupt industry with poor management, right? In fact, my guess is that the very reason for these merger talks is to show the government that they are “serious” about changing their way so they can get in the dole line. So, who wants to be the first to own a GM Charger?