Feb. 15 (Bloomberg) -- General Motors Corp., the world's largest automaker, is in discussions with DaimlerChrysler AG's Chrysler unit on an alliance to share the costs of designing and developing cars, people with knowledge of the talks said.

The discussions, which began about a month ago, may allow the two automakers to share chassis designs and reduce development costs, said the people, who asked not to be identified. The talks include possible cooperation on a large sport-utility vehicle, one of the people said.

DaimlerChrysler, of Stuttgart, Germany, said yesterday it is considering ``all options'' for the money-losing U.S. subsidiary.

``GM has a lot Chrysler could gain from because they have the more modern technology,'' John Wolkonowicz, an analyst at Global Insight in Lexington, Massachusetts, said in an interview. ``I see GM as the stronger partner in any discussions.''

GM may not be DaimlerChrysler's only potential collaborator for Chrysler. The American auto company, purchased by the Germans in 1998, has struggled to fulfill the initial vision of former Chief Executive Officer Juergen Schrempp. Schrempp bought the Auburn Hills, Michigan-based company for $36 billion to transform Daimler into a global auto player.

Since then, the third-largest U.S. carmaker has bounced from losses to profits and back again as the high cost of U.S. manufacturing reduced its ability to compete with Asian producers such as Toyota Motor Corp.

DaimlerChrysler shares rose as analysts raised their estimates and price targets. U.S. shares rose gained 47 cents to $70.25 at 4:18 p.m. in New York Stock Exchange composite trading, their highest closing price in seven years. GM shares fell 6 cents to $36.44.

Increased Estimates

Morgan Stanley raised its share-price estimate for the carmaker by 13 percent to 62 euros. Deutsche Bank AG increased its projection to 73 euros from 54. Dresdner Kleinwort upgraded the stock to ``buy'' from ``hold'' and raised its price estimate to 65 euros from 47.

For GM, which too is struggling to trim costs, an alliance with Chrysler could also reduce vehicle-development expenses. GM CEO Rick Wagoner in October rejected a plan to link with Carlos Ghosn's Renault SA and Nissan Motor Co. Wagoner began those talks at the urging of billionaire GM investor Kirk Kerkorian, 89. Kerkorian, who had been GM's biggest individual investor, sold his remaining shares in December.

``A potential alliance between the two carmakers could be sensible if it is focused in selected product or technology areas,'' JPMorgan Securities analyst Himanshu Patel wrote in a report today. ``A sweeping alliance between the two (Renault- Nissan style), however, would seem to benefit Chrysler much more than GM'' because of GM's larger size.

North America

So far, discussions between GM and Chrysler have focused on North American projects such as whether the automakers may share development of vehicles or engines, the people with knowledge of the talks said. The talks may not result in any agreements, they said. GM's U.S. sales fell 8.7 percent last year, and Chrysler's dropped 7 percent. Toyota sales gained 12.5 percent.

A large SUV is one project under study, said the person familiar with that area of the discussions. GM has models such as the Chevrolet Tahoe that are larger than Chrysler's largest models, the Dodge Durango and Chrysler Aspen. Chrysler said yesterday it will close the plant that makes those models in 2009. The Wall Street Journal reported the SUV talks earlier today.

Renee Rashid-Merem, a spokeswoman for Detroit-based GM, and Mike Aberlich, a Chrysler spokesman, declined to comment.

Manager Magazin Report

German business publication Manager Magazin reported yesterday that talks were taking place about a possible purchase of Chrysler by GM. DaimlerChrysler CEO Dieter Zetsche declined to comment on the report during a media briefing at the company's U.S. headquarters.

Aberlich also declined to comment on Detroit News and New York Times reports, citing people with knowledge of the situation, that DaimlerChrysler had hired JPMorgan for advice on its strategic alternatives.

If talks resulted in a tie-up, it may not improve the competitive position of either GM or Chrysler. ``Technology- sharing alliances happen in this industry all the time,'' said John Novak, an analyst at Morningstar Investment Service in Chicago. ``Chrysler could benefit from GM's expertise in engine and powertrain development, but it alone is not enough to save GM or Chrysler.''

Chrysler yesterday said it would trim 13,000 North American jobs and close a Delaware plant to return to profit next year after losing $1.5 billion in 2006.

GM last year finished buyouts and early retirements of 34,400 union workers as part of a plan to close 12 North American locations by 2008. The automaker lost $10.6 billion in 2005 and another $3 billion in the first nine months of last year.

Other Options

Should talks with GM fall apart, DaimlerChrysler has other options. It could seek an alliance with Ghosn or turn to a Chinese company.

``One of the obvious partners is Renault-Nissan,'' said John Casesa, managing partner of Casesa Strategic Advisors LLC. ``Beyond that, it's not so easy to know who among the established automakers might be interested. The Chinese are the dark horse.''

As well as gutting the strategy of Schrempp, who retired in 2005, any sale would be a defeat for Zetsche, who won his job in part because of a revamp of Chrysler starting in 2000 that trimmed more than 40,000 jobs and restored profit at the unit. As recently as Feb. 5, he refused to recant an Oct. 26 vow that Chrysler wasn't for sale.

``Chrysler is in no-man's land,'' said Casesa, who is based in New York. ``It's not getting the benefit of being part of a big global auto company. At the same time, it doesn't have the independence that would make it more flexible.''

$5 Billion Value

Chrysler might have an equity value of about $5 billion, Ron Tadross, a Bank of America Equity Research analyst based in New York, wrote in a report yesterday.

``We would not be surprised if there is good interest in Chrysler,'' said Tadross, who has a ``neutral'' rating on DaimlerChrysler shares. ``We see Chrysler as a decent business, at least relative to the other U.S. domestic manufacturers.''

Ghosn has said repeatedly that he eventually would like a North American partner, after GM and Ford Motor Co. rebuffed him on an alliance with Renault and Nissan. Yet Ghosn said on Feb. 8 that expanding his French-Japanese alliance now ``would be dangerous'' because he's focused on restructuring Renault.

``For the moment we have no comment,'' said Sophie Perrier, a spokeswoman for Boulogne-Billancourt, France-based Renault.

The Chinese Scenario

Shanghai Automotive Co., the publicly traded unit of China's largest automaker, might also be among carmakers big enough to buy Chrysler, Casesa said. Shanghai Automotive has joint ventures with GM and Volkswagen AG and in January unveiled the first vehicles under its own brand.

DaimlerChrysler should sell Chrysler's Dodge and Chrysler brands and keep Jeep, Stephen Pope, head of equity research at Cantor Fitzgerald LP in London, said in an interview.

Chrysler already has ventures to build vehicles with other automakers. In December, it picked China's Chery Automobile Co. to produce cars smaller than its current models, after deciding it couldn't make them profitably in the U.S.

Chrysler makes pickups in Michigan for Mitsubishi Motors Corp. and will build minivans for Volkswagen in the U.S. Some new Chrysler models such as the Dodge Caliber use transmissions from a Nissan supplier, all-wheel-drive from Mitsubishi and diesel engines from Volkswagen.

GM, DaimlerChrysler and Bayerische Motoren Werke AG also have a $1 billion joint venture to design and produce gasoline- electric hybrid transmissions. The first models using technology from that venture go on sale this year.

Doubts

Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee, said he doubts Chrysler would find an automaker partner.

``We would be surprised to see Chrysler paired up with another auto manufacturer and believe a private-equity consortium would be a more likely buyer in the event a transaction were to take place,'' he said.

Private-equity buyers already are buying and bidding on makers of auto parts such as steering wheels, seats and carpet.

Private Equity

Wilbur Ross, a billionaire investor and chairman of WL Ross & Co., acquired most of bankrupt auto-parts supplier Collins & Aikman Corp.'s European operations and bought auto-interiors businesses from Lear Corp.

For Chrysler, ``the most logical buyer would be another carmaker,'' Ross said in an interview. Chrysler ``wouldn't fit'' with the parts suppliers acquired for his International Automotive Components Group LLC, Ross said.

Lear this month also agreed to a $2.8 billion buyout offer from billionaire Carl Icahn.

Cerberus Capital Management LP and David Tepper's Appaloosa Management LP are part of a group that agreed to invest $3.4 billion to take control of Delphi Corp., the auto-parts maker spun off by GM in 1999 and now in bankruptcy.

If Chrysler is sold, it probably won't be for a few years to let the current restructuring plan take hold and return the unit to profit, Christophe Boulanger, a fixed-income analyst at Dresdner Kleinwort in Paris, said in an interview.

The yield premium investors demand to own DaimlerChrysler's 1.25 billion euros ($1.64 billion) of 4.375 percent bonds due in 2013, compared with similar-maturity government debt, narrowed by 2 basis points to 72 basis points, according to Fortis Bank. A basis point is 0.01 percentage point.

Credit-default swaps based on 10 million euros of DaimlerChrysler debt fell 3,500 euros to 43,000 euros yesterday, according to Deutsche Bank AG. The price is at its lowest in more than five years, according to data compiled by Bloomberg.

To contact the reporters on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net; Jeff Bennett in Southfield, Michigan at jbennett17@bloomberg.net

Last Updated: February 15, 2007 16:47 EST