Analysts skeptical of rumors about an auto-giants merger

[nadepalma]

SOURCE: freep.com

Analysts skeptical of rumors about an auto-giants merger
Move would likely mean major cuts
October 12, 2008

A merger of General Motors Corp. and Chrysler LLC could save billions of dollars but would surely mean dramatic job cuts, especially in metro Detroit where duplicated operations likely would face elimination, people familiar with discussions about the possibility said Saturday.

The revelation that Chrysler's private equity owner Cerberus Capital Management has been in talks with GM about a historic deal to remake Detroit's struggling auto industry also is a sign that Chrysler's fate is yet again hanging in the balance.

While Chrysler is talking with other companies about a range of potential relationships, people familiar with GM-Cerberus talks told the Free Press that a GM-Chrysler pairing makes sense to both sides. Such a deal, though, is far from certain and could be complicated by the nation's troubled economy.

While this isn't the first time GM and Chrysler have had talks, David Cole, chairman for the Center for Automotive Research, said, "It's definitely more real" this time.

"This is one of those things that's an opportunity too good to pass up," he said. "There's a lot of talks going on pretty much across the industry. And I think you can assume that in this there are going to be some surprises."

In fact, a person familiar with situation said Saturday that GM officials had approached Ford in recent weeks about joining forces, but Ford decided to remain independent.

Naysayers weigh in
There's plenty of skepticism and caution about the risk.

"Big automotive mergers generally have not been successful," said David Healy, an industry analyst with Burnham Securities.

Eric Merkle with Crowe Horwath LLP echoed those thoughts: "You're putting together two struggling automakers right now and what you end up with in the end is just a big struggling automaker."

Merkle said a potential deal hinges on GM -- which has already lost $18.8 billion this year -- getting cash for taking Chrysler. GM needs cash to make it through the economic slump and retool its operations to build more fuel-efficient vehicles. "I don't know where the cash is coming from, but I've got to believe cash is part of the equation."

A Cerberus spokesman declined to comment Saturday. Representatives for GM and Chrysler also are not talking beyond general statements saying each company routinely communicates with others about opportunities.

An all-out merger with Chrysler would swell GM's employment ranks by 25%, add 3,500 dealerships to its network and create duplication of products -- all of which would likely fall beneath the corporate knife.

This year has been tough for the already embattled Detroit automakers. U.S. car and truck sales are down almost 13% across the industry, with Chrysler's sales down 25% and GM's down 17.8%. Chrysler and GM are losing money, and both companies have felt it necessary to issue statements this year saying that they were not considering bankruptcy.

With all of that, Van Conway of Conway MacKenzie & Dunleavy said the companies must look at all options.

"I think you've got to look at those things when you're in their situation," said Conway, who is an expert in reorganization and management of troubled companies. "I think you could find after the integration billions of dollars of cost savings."

"I don't see it as a good thing," said one UAW leader, who asked not to be identified because of his elected rank in the union. "It would mean massive plant closures and a loss of jobs from top to bottom."

Already, GM has reduced its workforce by more than 19,000 workers since February 2007.

Cerberus, which owns 51% of GM's finance arm GMAC, has reportedly proposed a swap in which GM would get Chrysler's auto business and Cerberus would get GM's GMAC stake.

"That deal would be fantastic for Cerberus," said Aaron Bragman, an industry analyst with Global Insight. "The government is about to come out and basically wipe out a whole lot of the mortgage securities problem. ... I don't understand why GM would want to get rid of GMAC right before the government rescue."

It's been a little over a year since Chrysler struck out on its own as the first privately held major U.S. automaker in more than 50 years. Cerberus acquired majority control from DaimlerChrysler, now Daimler AG, in August 2007.

MORE HERE

[nadepalma]

In fact, a person familiar with situation said Saturday that GM officials had approached Ford in recent weeks about joining forces, but Ford decided to remain independent.

This is suprising - FoMoCo is a much larger competitor and I can't imagine how this would have gone down. It would have been a huge mess.

However, it doesn't surprise me that it wasn't agreed upon. The Ford Family has proven in the past that they are not open to diulting their stake in Ford or giving up control. Unless they were guarenteed a significant stake in any new corporation, they wouldn't be open to it.

Plus, Mulally has illustrated his strong belief in being as "uncomplicated" as possible. He sold off Jag/Land Rover, is probably looking for someone to take on Volvo, sold off Aston Martin, and is now seeking someone to buy their stake in Mazda according to recent reports.

To say that Mulally's business plan is "less is more" would be an understatement. I'm sure he wouldn't seek or agree to any kind of pairings anytime soon.

[big swede]

It's not going to happen. It's just a bunch of over sized egos thumping their chests and justifying their positions. All B.S.

[wildgoosechase]

I wonder if the plan is merge then file Ch11. Clear out all the debt and pension costs then reform as AMC.

[Ambalanche]

I honestly can't see any benefit for GM to do this. I hope it doesn't happen.

[vcs2600]

Originally Posted by nadepalma

To say that Mulally's business plan is "less is more" would be an understatement. I'm sure he wouldn't seek or agree to any kind of pairings anytime soon.

Mulally's plan is "One Ford".

Meanwhile a merged GM/Chrysler would still have about 8 different mid-sized sedans, at least in the short term. This move would undo any global consolidation that GM has belatedly gotten around to.

[jbernie]

Originally Posted by nadepalma

To say that Mulally's business plan is "less is more" would be an understatement. I'm sure he wouldn't seek or agree to any kind of pairings anytime soon.

Less is more can work easier for Ford. Get them back down to the three brands. Ford is mainstream. Mercury is entry level Luxury. Lincoln is luxury. Build a rock solid platform and then just add the appropriate bits to adjust the ride appropriately.

Not going to say that the US public will accept this setup again in short time, but by focusing on these three and not trying to appease Volvo with this or Jaguar with that, they can excel in the three brands so much easier.

Ford's biggest issue was the luxury brands and snobs not wanting the base brands to infringe on them. GM has too many more generic brands so their problem is different.

[windvale]

GM doesn't need to get bigger. GM needs to get smaller. A lot smaller...

[jbartley]

i doubt they would kill off brands for the first couple of years..too expense..and customers couldn't handle that. just as we might be a chevy, gmc, or cadillac loyalist, there are chrysler, dodge, and jeep loyalists that might be seriously peeved if their brand just disappeared. this merger is prob more to pool resources and consolidate behind the scenes. brand re-working would come later.

[skylark68]

Originally Posted by jbartley

just as we might be a chevy, gmc, or cadillac loyalist, there are chrysler, dodge, and jeep loyalists that might be seriously peeved if their brand just disappeared.

There are actually Chrysler loyalists out there???

[Buick Riviera]

All BS.

[neshapop]

A merger type "submit paperwork for bakrupcy" at the same time...

[kenman923]

I do think that it's going to happen. Out of desperation, Renault-Nissan agrees to be purchased by Daimer AG making the new company Daimler-Renault.

[Buick Riviera]

How about gm sells off these rest of GMAC, and they go there seperated ways.

[ByTheLake]

Originally Posted by wildgoosechase

I wonder if the plan is merge then file Ch11. Clear out all the debt and pension costs then reform as AMC.

Given how global the automotive industry is, the name 'AMC' would be absolutely wrong.