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Dealers
GM, Chrysler Talking Merger
By 
Marty Padgett October 11th, 2008
General Motors and Chrysler have held discussions over the past month to merge the two companies, the New York Times and the Wall Street Journal reported late Friday evening.
The Journal says the deal would likely involve a swap of Chrysler assets held by Cerberus Capital Management, for the remainder of GM's finance arm GMAC that Cerberus does not already hold--49 percent of GMAC's shares.
The possibility of a merger is on hold because of the stock market's gyrations, the papers add, but a deal could be rejoined quickly if the markets stabilize.
A merger between GM and Chrysler would lead to radical, and permanent, changes in the U.S. automotive landscape. The companies have more than 100 factories and 11 brands, not to mention thousands of dealers, that would have to be rationalized to make money out of the merger. Other sources estimate GM could net $10 billion in savings out of a potential merger--but that would only happen after drastic cuts to the number of models the companies make, plants they operate, and people they employ.
Both sources suggest Cerberus would end up taking an unnamed share in the combined GM-Chrysler.
The Times says a deal between the two is "50-50" and could take weeks to finalize. This week, GM has repeatedly denied it's considering a bankruptcy filing as its stock shares have been slammed, falling from $43 a share as a recent high to $4 a share this week.
As for Chrysler, it's been a continual source of speculation this year, as Cerberus--which owns an 80 percent stake in the company--faces another year of large sales drops. The Times reports Chrysler's parent has been hoarding cash that would otherwise have been spent developing new models, making it more certain that some kind of deal must be struck to give Chrysler a shot at survival. At the recent Paris auto show, sources suggested that Cerberus' recent moves to acquire the rest of Chrysler from Daimler AG would make it easier to package the company for a quick fire sale--something it's unable to do if it does not own the company outright.
Chrysler has also been exploring deeper alliances with Renault/Nissan. It has engaged that alliance to build a new small car for Chrysler--basically a rebadged Nissan Versa--while Chrysler provides Nissan with a next-generation Titan pickup spun from its Ram truck. The synergies from a Chrysler-Renault/Nissan deal, on paper, are far more uncomplicated than with GM. Chrysler's expertise in trucks, minivans and SUVs would have little overlap with Nissan's luxury, performance, and small cars.
However, pressing financial concerns and the U.S. political season, not to mention the common Cerberus ties, could make a GM-Chrysler deal far more palatable. A merger between the companies may sail through federal approval, since GM and Chrysler's market shares are hitting historic lows. GM controls 22 percent of the U.S. market, while Chrysler holds 11 percent. Rival Ford Motor Company has hovered around 13 to 15 percent in 2008, with a downward trend. A deal would also ensure GM remains the world's largest automaker, outgunning Toyota and controlling 35 percent of the U.S. market for new light vehicles.
The Journal says the deal would likely involve a swap of Chrysler assets held by Cerberus Capital Management, for the remainder of GM's finance arm GMAC that Cerberus does not already hold--49 percent of GMAC's shares.
The possibility of a merger is on hold because of the stock market's gyrations, the papers add, but a deal could be rejoined quickly if the markets stabilize.
A merger between GM and Chrysler would lead to radical, and permanent, changes in the U.S. automotive landscape. The companies have more than 100 factories and 11 brands, not to mention thousands of dealers, that would have to be rationalized to make money out of the merger. Other sources estimate GM could net $10 billion in savings out of a potential merger--but that would only happen after drastic cuts to the number of models the companies make, plants they operate, and people they employ.
Both sources suggest Cerberus would end up taking an unnamed share in the combined GM-Chrysler.
The Times says a deal between the two is "50-50" and could take weeks to finalize. This week, GM has repeatedly denied it's considering a bankruptcy filing as its stock shares have been slammed, falling from $43 a share as a recent high to $4 a share this week.
As for Chrysler, it's been a continual source of speculation this year, as Cerberus--which owns an 80 percent stake in the company--faces another year of large sales drops. The Times reports Chrysler's parent has been hoarding cash that would otherwise have been spent developing new models, making it more certain that some kind of deal must be struck to give Chrysler a shot at survival. At the recent Paris auto show, sources suggested that Cerberus' recent moves to acquire the rest of Chrysler from Daimler AG would make it easier to package the company for a quick fire sale--something it's unable to do if it does not own the company outright.
Chrysler has also been exploring deeper alliances with Renault/Nissan. It has engaged that alliance to build a new small car for Chrysler--basically a rebadged Nissan Versa--while Chrysler provides Nissan with a next-generation Titan pickup spun from its Ram truck. The synergies from a Chrysler-Renault/Nissan deal, on paper, are far more uncomplicated than with GM. Chrysler's expertise in trucks, minivans and SUVs would have little overlap with Nissan's luxury, performance, and small cars.
However, pressing financial concerns and the U.S. political season, not to mention the common Cerberus ties, could make a GM-Chrysler deal far more palatable. A merger between the companies may sail through federal approval, since GM and Chrysler's market shares are hitting historic lows. GM controls 22 percent of the U.S. market, while Chrysler holds 11 percent. Rival Ford Motor Company has hovered around 13 to 15 percent in 2008, with a downward trend. A deal would also ensure GM remains the world's largest automaker, outgunning Toyota and controlling 35 percent of the U.S. market for new light vehicles.
Rex Roy
Responses (12 total)
By J-F Houle | Posted: Oct 11th 2008, 01:38:05 PM
This would be the worst deal for white collar and factory workers.
American must buiying again american brands. We need patrioc acts in our purchases.
By Bill Burke | Posted: Oct 11th 2008, 02:08:17 PM
If this deal were ever allowed to happen, it would mark the end of the American auto industry as we know it. I'd rather see embargos on imports and hugh tariffs before the capitalistic foundation of this industry is destroyed. How long before Ford would be absorbed? How long before the auto industry is nationalized? The American people and our representatives, the US government, must speak loud and clear, this is NOT an option. I have spoken my little bit, do we have any others who will stand up to the quick-buck, back-room deal artists? Shame on you Ceberus, you have no soul!
By Ed | Posted: Oct 11th 2008, 03:41:54 PM
You may remember me frequently writing that GM should buy Chrysler and keep any divisions and models of value and discard the rest, many times. I am not in the least surprised that GM and the fools at Cerberus are in talks to do just that. Ford is in much better shape than Chrysler, and even GM, because it has the $23 billion credit line that can keep it alive for a few more years, and then it can show us what it got, or drop dead as it should. FAR BETTER car and non-car companies have gone broke (PACKARD and DUYSENBERG to name but a couple, and Aston martin, Rolls and Bentley have long since been sold to FOREIGNERS, and the second and third to GERMANS to boot!)
But besides all that: A few things are clear:
The DAMNED FOOLS at Cerberus made a HUGE mistake in buying Chrysler, and their poor judgement was compounded with the bad luck of $150 oil and the financial mess.
So I bet it is CERBERUS, not GM, that initiated the talks.
2. Remember the even greater fools at Mercedes (Daimler) bought this carcass (Chrysler) for the UNBelievably high price of $36 or 37 BILLION in 99, and Cerberus bought it from them for a pittance $6-7 billion, and not in 1999 $, but in inflated 2007 $! SO how much should GM pay? Even $1 billion looks like too much for this TURKEY.
3. What, if anything, does Chrysler have of value to GM?
a. MINIVANS. Even in today's market, they are valuable, because NEITHER Ford or GM were EVER able to put together a half-decent Minivan, to compete with "THE KING" (Honda Odyssey) and the practical and reliable TOyota Sienna. (all others are insignificant). A more reliable, efficient version of the Chrysler vans could help GM sales and market share
b. JEEP. They were once a valuable brand, but not with $4 gas, now only SERIOUS buyers that NEED to go off-road all the time will buy them. Niche vehivles at best.
c. And what else? The... "Ram"? Give me a break, the Silverado and the Sierra are the best sellers now, better than even the F150. The execrable Caliber and Durango? Give me more breaks.
4. "Will it be allowed" for GM to merge with CHrysler? WHY NOT? This is NOT the 60s, when the big 3 accounted for 90% of all sales, and a merger would make tyhe industry monopolistic or oligopolistic. Today the big 3 put TOGETHER sell much less than 50%! So of course it willbe allowed legally, IF it makes sense financially.
5. As for the white collar and blue collar workers that may lose their jobs, and especially the arrogant, retarded and overpaid CEOS, I have little sympathy for most of them, they brought it on THEMSELVES, I am NOT their sugardaddy and they should NOT be Welfare queens, BUT they should find a job elsewherer in the auto industry, IF they got what it takes, OR RETRAIN for another industry, or RETIRE.
3.
By Cyrus | Posted: Oct 12th 2008, 02:38:21 AM
It simply does not make sense for GM to buy Chrysler. If they have money to spend, they should instead buy (or have kept) Suzuki: Small cars, good growth, little overlap with GM and an existing relationship in Daewoo (afterall, Suzuki has a minority stage in GM Daewoo in Korea).
If Chrysler is to be saved, it will be by a combination of long term strategic partnerships with other manufacturers (something that is working for Fiat and Peugeot/Citroen), long term product planning and much better vehicles. GM and Ford make and sell cars all around the world, Chrysler does not.
There is a lot to be said about Nissan buying - but only at a really low price - Chrysler. There is lower product overlap, a decent brand (Jeep) and potential for the other brand. The Chrysler brand has been diluted by minivans and PT cruisers but with patiente it could compete in the mid-luxury market. The 300C is a perfect example. Dodge can spearhead a US revival in Europe (it is having mild success), and Plymouth could be revived with Renault cars (some smaller models), minivans, crossovers and PT Cruisers. Quality would have to follow.
If GM buys Chrysler, they will spend then next 3 years closing factories, deleting namebrands, laying off people, and they will NOT save any money. GM has to focus on continuing the long road uphill which has had some successes. The merger would be a big waste of time and money for everyone.
By Reece | Posted: Oct 12th 2008, 10:10:40 PM
Again Detroit just don't get it. This would be bade for everyone involved, except maybe cerberus.
Any buy out (lets not again believe the bs of "a merger of equals" would spell the end for much of the US automotive brands. Gm would probably keep just Dodge and Jeep, junk Chrysler (too close to Chevrolet), dump Pontiac for Dodge (Same market), kill of Buick except in Asia. Bt int he end not do much of anything.
As strange as it sound VW is probably the best fit to buy Chrysler. Why? because it solves 2 problems. VW has little presence in US and is looking for manufactuing capacity in the US to offseat high costs in Europe. Would be good for Chrysler in that it desperately needs to update its small cars. VW has a wonderful system where all companies in the group use the same drive trains and suspension pieces (except the super sport and luxury divisions -Buggati, Bentley Lambo). It keeps costs down but allows for a degree of individuality between the brands. Chrysler could use this to start building half decent small cars without huge expense of having to develop them. Eg Dodge nitro could be built of VW punto/polo parts. VW could use excess capacity to build some of its products in the US and if Chrysler are using its parts this will reduce cost of changing over the factories as the expense could be spread accross a few different products.
YEs the take over by Mercedes was bad for everyone, and VW has many of the management issues mercedes did but the differences is that Chrysler fits a need of VW (which it never did with mercedes) and VW fits a need for Chrysler.
A buy out by GM will just create an even bigger problem for GM. There is nothing, apart from maybe Jeep, that Chrysler has that GM needs. It weill just add to the bloat.
But Detroir being detroit will probably o this beacuse it is the wrong thing to do.
By Cyrus | Posted: Oct 13th 2008, 03:18:39 AM
Good comments Reece. Chrysler would be a pretty good fit for VW (plus they could get to #2 and #1 as planned faster). They are trying to grow in many areas Chrysler could help.
However, Fiat makes the Punto, and the Polo is a subcompact by our standards. I believe you were thinking of the Dodge Hornet subcompact - being developed by Chery, or maybe the VW Tiguan as the basis for the Nitro? Otherwise the platforms will not work... FYI
By Dave | Posted: Oct 13th 2008, 01:49:50 PM
Cyrus, I believe you are on the right path, VW or Nissan would be a good choise. Carlos Ghosen has said he is not looking for a partner or to take over Chrysler. But it would not be good busniess sense to tip your hand if you are going to purchase Chrysler. I dont see GM buying Chrysler or whatever when Chrysler has deals with VW (minivan) Nissan (Hornet,Titan replacement) and Cherry (another small car). I think it would be to complicated. But is Lutz pushing this so he can get his hands on Chrysler again?
By Peter | Posted: Oct 13th 2008, 03:27:18 PM
I'm all for people supporting their local economy. That's why every vehicle I have bought, I've bought american :-) Meaning, I've bought well-maintained 10+ yr old imports from US citizens. Yes, 1 or 2 US_nameplate products have snuck in, but none last as long as the others. I will say this though about being patriotic in purchases....to make that argument it has to be across the board. Your clothes, your eyeglasses, your cell phone, your flat-screen tv, your teenager's video game system and mp3 player. People pay more for their brand-new "import" plasma tv than i've paid for my 100 and 200+k mile import car! Which money left the american economy first?!
Personally, I've lost my job before, more than once, and while I feel for whoever draws the short end of the stick on this, I've never really liked Chrysler, especially after my wife called me one day to tell me she pulled the key out of the ignition of her LHS and the engine stayed running!
By Al | Posted: Oct 13th 2008, 06:28:21 PM
This makes absolutely no sense. Chrysler is a worthless company that continues to make low quality vehicles that nobody wants. If the Daimler and Cerberus acquisitions didn't work, then why would a GM deal work when GM is strapped for cash, the economy is in the dumps and GM dealers are going out of business? What does GM need from Chrysler anyway?
The senior managers at GM and Ford continue to make one dumb decision after the other.
VW can have Chrysler. Both their quality ratings are at the bottom of the heap, so there is great synergy there.
By Reece | Posted: Oct 14th 2008, 10:10:25 PM
Cyrus you were right I meant Hornet
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