GM Reportedly Hires Goldman to Advise on Advances by Fiat Chrysler

NEW YORK (TheStreet) -- General Motors (GM) has hired Goldman Sachs (GS) to advise top management with regard to merger or alliance proposals from Fiat Chrysler Automobiles   (FCAU), which GM has publicly declined, said a Reuters report that cited unnamed sources. 

GM also is being advised by Morgan Stanley (MS), a longtime and traditional GM investment banker, while Fiat Chrysler is working with UBS (UBS), Reuters reported. Goldman Sachs has for decades been a banker to Ford (F).

Goldman has worked with Fiat and was an adviser to GM in February, when hedge funds representing 2.1% of GM's shares demanded an accelerated share buyback and a seat on GM's board, according to Reuters. The initiative ended in a truce, with GM agreeing to buy back shares and raise its dividend, although it didn't give up a seat on its board.

Fiat Chrysler CEO Sergio Marchionne, without advancing specific intentions or plans, has been advocating publicly that the global auto industry must pursue consolidation to stem a ruinous loss of capital because of the high cost of technology, environmental compliance and new-model development. With many brands and models, debt-laden Fiat Chrysler lacks the scale to renew its fleet as fast as competitors can. 

GM CEO Mary Barra has spurned Marchionne's request to discuss a possible combination of the companies or a collaboration. She confirmed press reports that the Fiat Chrysler's chief had contacted her. 

"There was an email that was very much vetted with management and our board," Barra told reporters last week prior to GM's annual shareholders' meeting in Detroit. "And after we reviewed that, we are committed to our plan. We think that's in the best interest of General Motors shareholders, and we have strong support." 

The mix of activism by GM shareholders and Fiat Chrysler's initiative, as well as looming contract negotiations with the United Auto Workers union, is increasing pressure on Barra. GM, which filed for bankruptcy in 2009 and was reorganized under government supervision, has been a disappointing investment since its initial public offering in 2010. 

GM shares have remained more or less flat in the mid-$30s since the IPO. Fiat Chrysler shares are up 32% since its IPO last year. Chrysler filed for bankruptcy in 2009 and was rescued via an alliance with Fiat that later became a merger. 

Barra, an engineer and longtime GM employee, has been swamped with controversy since she took office in 2014, because of a recall covering 2.6 million GM vehicles for defective ignition switches linked to 111 deaths. GM also is facing a possible criminal probe in connection with the defect.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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