Detroit fears the worst as GM merger talks roll on

DETROIT (Reuters) - Detroit's economy has been beaten down for years by wave after wave of job losses in the U.S. auto industry, but locals fear the worst may be yet to come if General Motors Corp and Chrysler LLC merge.

"It's already been ripped apart," Tim Jones, 55, said when asked about the economy of the Detroit area.

"People are losing jobs. If you walk down any main street in this area, you see half of the businesses are closed," said Jones, who left the construction industry two years ago to start an online business selling cell-phone batteries.

"A combination of GM and Chrysler will only make things worse."

From its gritty downtown to its leafy suburbs, fears of massive layoffs loom large in Detroit, a city whose fortunes remain tied to the declining American automakers.

In the last eight years, Michigan has lost 300,000 manufacturing jobs, the bulk of them in the auto industry. The unemployment rate in Michigan hit 8.9 percent in August, well above the national average of 6.1 percent.

Detroit has also been ravaged by a declining population, failing schools and a housing market saddled with thousands of abandoned homes. It ranks as the poorest big city in the United States with over a third of its residents living below the poverty level.

In the latest threat, Chrysler, owned by private equity firm Cerberus Capital Management LP, remains in talks with GM about combining the two automakers at a time when both are struggling to survive a deep downturn in sales and shore up cash.

Lee Ellis, a 33-year-old military contractor, does not believe GM could safeguard its own future through a merger with its smaller rival.

"They cannot hardly manage themselves right now and it's going to make things bigger and more unmanageable by buying another large corporation which is also not doing well financially," Ellis said.

"It will hurt. A lot of people will lose jobs and it's going to start affecting a lot more cities."

GM, which has lost $51 billion over the past three years, is in the process of cutting about 15 percent of its 40,000 salaried workers in North America, while Chrysler is cutting 1,250 salaried workers.

Those cuts have come on top of tens of thousands of hourly factory jobs the companies have shed in recent years as sales plunged and losses mounted.

"Pretty much I think it will lead to a greater decline in the Detroit economy than what we already have," said Phil Bybee, 48, who works for an auto insurer.

"Detroit has been on the decline for a while, but the suburbs are now going to be hit hard as well." "Even in Brighton, it's a pretty well-off area, but we already see a lot of homes at the foreclosures there as well. People are losing their jobs, they can't sell their homes so they just walk away," Bybee, a resident of the suburb of Brighton, added.

Jonathan Ross, 60, a taxi driver in downtown Detroit, said the city's taxi companies have suffered in the downturn.

But Ross thinks a merger of GM and Chrysler could be good if a combined company join forces to compete with foreign automakers, rather than competing against each other.

"If they merge, somebody's going to lose a lot of jobs, probably Chrysler," he said. "It would not be good, but it would be unavoidable. The jobs will go away even if they don't merge."

(Editing by Andre Grenon)