Wild Ass Rumor of the Night: GM and Chrysler Merger
This is one of those “news” alerts where I check to see if it’s April 1. Not so Ray Wert. Jalopnik’s main man is happy to hook, line and sinker the The New York Times‘ story that “General Motors is in preliminary talks about a possible merger with Chrysler, a deal that could drastically remake the landscape of the auto industry by reducing the Big Three of Detroit automakers to the Big Two.” There are three reasons why this story means WAR for TTAC. First, NYT scribe Bill Vlasic is a longstanding Detroit cheerleader. Second, the story backpedals in the second paragraph: “The talks between G.M. and Cerberus Capital Management… began more than a month ago, and the negotiations are not certain to produce a deal. Two people close to the process said the chances of a merger were ’50-50′ as of Friday and would most likely still take weeks to work out.” And this: why? What possible benefit would this deal be to anyone– save the consultants who’ve been paid millions to try to answer that question without laughing. The Times’ theory? “Given that both G.M. and Chrysler are struggling, the two sides may determine a merger may not be in their best interests.” Oops! Let’s try that again. “While G.M. and Chrysler may be hamstrung by labor contracts from cutting jobs, the two companies could combine dealers, product lines and advanced vehicle technology.” About a week ago, we heard that GM was considering buying Jeep to combine it with HUMMER. We didn’t repeat that absurdity (until now). But then, we’re not the New York Times. Or Jalopnik.
It's been a busy morning. I was cleaning out the garage when the newscast on the radio announced the story about the talks between GM and Cerberus. So I have been visiting Autoblog and Allpar as well as the news sites trying to absorb this. I found some interesting posts on Allpar. A lot of us here think the whole automotive world revolves around GM (how many Deathwatches now?) but there are fans and followers of other automakers. I thought it would be interesting to share some of their thoughts: --------- Why merge with GM? It's like attaching a canoe to the Titanic and calling the contraption seaworthy. BR Miller Something tells me this story is overblown. Remember, the media was reporting that Chrysler was out of money, too. That turned out to be utterly false. Perhaps Cerberus is sniffing around GM to see if there's opportunity there too, but I would say "no." GM needs to fix its own problems as does Chrysler. Merging them would be a logistical, labor and financial nightmare and there's literally no upside for Cerberus. Incidentally, Chrysler could buy ALL of GM on the stock market, right now, for about $3.8 billion, or about 34.5% of its cash reserves. Why wouldn't it just buy the pieces it wanted, at firesale prices, as opposed to merge and inherit all the problems of GM? A couple billion dollars could pick up the GM assets that Chrysler wanted, and they could just euthanize the rest of it. Doesn't make sense to merge. BR Miller Maybe you're on to something, with Chrysler (Cerberus) buying GM. However what'll happen with the small-car (B-segment) and pick-up truck deal between Chrysler and Renault-Nissan? EDIT: Just taught of something, maybe Ghosn might act behind the curtain as well, with partnering not only with Chrysler but also with GM (a much more bigger joint-venture then the European Vauxhall/Opel Movano and Vivaro-Renault Master & Trafic), then killing 2 birds with one stone. Ok I need to stop imagining such conspiracy theories (rolleyes) Stéphane Dumas Hopefully this is just Cerberus shopping for deals. I still think Hummer is up for grabs and GM needs cash. I could see Hummer fit into the Jeep line up. The whole Ghosn/Renault/Nissan thing makes me wonder too. Maybe Chrysler buys GM, keeps the pieces they want and sells Ghosn the pieces he wants. Some parts of GM could give Chrysler a much better global position. Although after the past few weeks of this market insanity, my brain hurts just thinking about this whole mess. edaddy OK, OK, stop the presses. I am proud to announce I am acquiring GM for 57 cents I found in the sofa, an old sock, and my 1982 Dodge Aries wagon. BR Miller Both articles I read talked about "unnamed sources." After everything that "unnamed sources" have said since the acquisition of Chrysler by Cerberus, I'm not going to believe anything will happen until it actually does -- IF it does. If all these "unnamed sources" knew anything, then Chrysler would not exist right now. DBR96A This doesn't make any sense on the face of it. You all know this would not be a merger, it would be GM taking over Chrysler. Aside from a few Jeeps, GM has a competitive model for every vehicle Chrysler sells. GM has too many dealers. GM has too many brands to effectively market. The only way it would make sense is if there was a third party involved. For instance, let's say that Cerberus wants to sell Chrysler off, and wants to buy GM's remaining stake in GMAC. And let's say that Cerberus doesn't want to spend any cash doing it. GM would probably like to sell their share of GMAC, and they definately want cash, NOT Chrysler. A foreign auto manufacturer has an interest in Chrysler, and has cash. So, Cerberus trades Chrysler for GM's remaining interest in GMAC, and GM in turn sells Chrysler to, say, a company like Nissan. I'll admit, that's quite a stretch....... CNT900 I've been buried in real work for the last few weeks -- I'm in the investment biz, as some of you recall -- but I have two cents to offer on this: 1) This really could happen. It would not be a "stake" or a "technology sharing agreement" or an "alliance", it would be Chrysler's vehicle manufacturing operations subsumed into GM. It is a real possibility and it could happen very quickly. 2) It will only happen if GM -- which despite what you guys here might like to believe is NOT run by stupid people -- thinks it makes long-term business sense for them. And it might. 3) There is a sense inside Cerberus that they got in over their head with Chrysler. They don't have an institutional understanding of the car-making business, and they especially don't have an understanding of how to shepherd an auto company through hard economic times. If they can swap Chrysler-the-manufacturer for GMAC -- a business they DO understand at a very deep, basic level -- it's an opportunity they are compelled to explore. 4) Speculation as to what this might mean for current and future vehicle programs is way, way premature. I doubt anyone below the level of Lutz's and Press's senior staffs has any idea how the product side of this might work yet, and even those folks are probably just batting ideas around at this stage. georgejetson What would GM get? LX cars, Jeep and minivans. That's all. They wouldnt want rest. It would cost them billions to close all the other plants. Not going to happen. marco Sounds like a deal for GM. Trade the remaining GMAC stake for Chrysler. Keep the bits you want (Jeep, etc), scrap and sell off the rest. End of Chrysler. magnum4.7 Not really, it would cost them billions to scrap the rest. Something GM doesnt have. And I am not even talking about dealer network - more billions. marco -------- More at http://www.allpar.com/forums/index.php?&showforum=65 registration is free
This makes about as much sense as a surgeon having the attending nurses swing a patient back and forth in hammock. I refuse to believe it.
I agree… a Chrysler purchase makes little or no sense for GM- a company that already has more brands than it can handle. It’s possible GM could acquire Chrysler, keep Jeep and shut down Chrysler’s automaking operations. But would acquiring Jeep be a net gain in the current environment? Possibly, but I can’t help but think that Jeep has already seen its best days for a while. I keep imagining that Renault/Nissan or VW will eventually get Chrysler - assuming an Indian or Chinese company doesn’t step in if the Europeans hold out just a bit too long. Either way, any potential deal with GM would have to involve no cash expenditure on the part of the General - and possibly access to a lot of cash in the months ahead.
Two sinking ships combined still makes one larger sinking ship. There's no way any company in their right mind would want either of these two companies until they hit ch11. The billions anyone would have to sink to fix the issues and pay the debts they've both amassed is staggering and I really can't see anyone stepping up to buy them until the pieces are on the chopping block after the UAW and the dealerships are out of the picture (talking foreign here). I can't even imagine Cerberus is that nuts, but then again they bought into Chrysler so who knows.