Discussion on the possible Chrysler-GM Deal

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Join the Discussion Here: GM In Talks To Buy Chrysler - The Complete News Summary

[nadepalma]

SOURCE: http://www.detnews.com/apps/pbcs.dll...02190365/1148/

GM, DCX talks serious
Nation's top automaker could absorb Chrysler
Bill Vlasic and Christine Tierney / The Detroit News

General Motors Corp. has been in talks for two months with DaimlerChrysler AG about acquiring all of the troubled Chrysler Group and folding its operations into GM, according to people familiar with the discussions.

The first contact occurred in December, when GM Chairman Rick Wagoner and DaimlerChrysler Chief Executive Dieter Zetsche met in Detroit to discuss the blockbuster idea of GM buying Chrysler from its German parent company.

While a deal is far from certain, at least four meetings have taken place involving Wagoner and GM's chief financial officer, Fritz Henderson, and Zetsche and DaimlerChrysler's CFO Bodo Uebber. Talks are said to be ongoing, primarily between Henderson and Uebber.

Both companies declined comment Sunday.

The underlying rationale for the deal is the need for major consolidation in the intensely competitive American auto industry, said people with knowledge of the talks.

GM, the No. 1 U.S. automaker, is said to be interested in absorbing Chrysler's revenue, production volume and brands, while cutting duplicative labor costs, management and overhead.

DaimlerChrysler, for its part, is intent on dissolving the 1998 merger that brought together the former Daimler-Benz AG and Chrysler Corp.

A GM acquisition of Chrysler would essentially reduce the Big Three to a Big Two, with only GM and Ford Motor Co. surviving from the dozens of American automakers that once existed in the 20th century.

As the deal has so far been discussed, Chrysler would cease to exist as a company or a corporate subsidiary. Instead its factories, brands and products would become part of GM's organizational structure.

But industry experts say such a deal would be fraught with risk for GM, which is in the midst of its own turnaround.

"They're not far along enough, in my assessment, to take on something as gigantic as absorbing Chrysler," said Gerald Meyers, a business professor at the University of Michigan and former chairman of the AMC automaker acquired in 1987 by Chrysler.

Wall Street analysts also have been skeptical about whether this would be a good deal for GM, ever since last Wednesday when the talks were first reported in Germany's Manager magazine.

"GM already has too many brands that cannibalize each other," said analyst Brad Rubin at investment firm BNP-Paribas. "If you add three more, there's going to be more cannibalization."

The talks, according to one source, could take months to complete. Also, other bidders are likely to emerge for Chrysler, which lost $1.5 billion in 2006 on revenues of $62 billion.

But there is growing momentum in the discussions between GM and DaimlerChrysler.

At DaimlerChrysler, the negotiations are being handled in great secrecy, at the highest levels. Company insiders say the management concluded that it needed to sell Chrysler during the annual 10-year strategic review of its operations, which took place in the fall.

DaimlerChrysler sources said it would be beneficial to sell the Auburn Hills unit as a whole rather than in parts because of the health care liabilities, which are estimated at $18 billion. Without liabilities, Banc of America Securities puts Chrysler's value at $5 billion.

There are two crucial issues that could prevent a GM purchase from happening: what price GM would pay for Chrysler and how the United Auto Workers union will react to two of the Big Three automakers joining together.

After losing $10.6 billion in 2005, GM is in the midst of a historic turnaround that includes slashing more than 30,000 jobs and closing several U.S. plants.

Chrysler last week announced its own broad restructuring that will eliminate 13,000 jobs and downsize vehicle production to match its shrinking market share.

A combination of the two would lead to deeper cuts, according to Meyers. "If you think the layoffs you've seen today are large, well, it's going to be a bloodbath in Detroit and in the Midwest."

He said the Chrysler assets that would be most valuable to GM were the Jeep brand, which could be paired with the Hummer nameplate, and its minivans.

"You could make the case that it's a good defensive move (for GM)," Meyers said. "But it's a huge risk. There's a lot more to be lost than to be gained."

On Wednesday, Zetsche stunned the automotive world when he said that "all options are on the table" regarding Chrysler, including alliances with other automakers or a possible sale.

In fact, Zetsche had begun discussing the plan of selling off Chrysler with Wagoner in December, according to people with knowledge of the meeting.

The talks were said to be of a serious nature from the start.

Zetsche was coming under heavy pressure from German shareholders to dump Chrysler, which has ridden a roller-coaster cycle of profits and losses since it was acquired nine years ago.

The initial meeting with Wagoner established that GM was interested in a Chrysler deal.

While GM had hit bottom with its own losses and painful restructuring, Wagoner and his management team had growing confidence that its turnaround plans were on track.

Buying Chrysler would boost its volumes and revenues significantly, and ensure that GM remained ahead of Toyota Motor Corp. as the world's biggest automaker. In the process, Chrysler's management structure would be eliminated and much of its staff functions taken over by GM.

GM would add the Chrysler, Dodge and Jeep brands to its corporate lineup, and save money by spreading engineering and vehicle development costs over a larger and broader range of products.



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[civilzues]

so it seems that GM is really doing this-crazy!

[Lewie]

It's all making a lot more sense to me, but it's still a huge risk...

[DuSpinnst]

It makes sense only if you dissolve Dodge, Chrysler, or both.

The funny thing is that Walter P Chrysler left GM (specifically Buick) to found his own company. If you combined Chrysler with Buick you would be coming full circle from 80 or so years ago.

[spaz]

a agree with this quote
"GM already has too many brands that cannibalize each other," said analyst Brad Rubin at investment firm BNP-Paribas. "If you add three more, there's going to be more cannibalization."

today there are threads on the board on how GM is going to make the next Pontiac G6 RWD because theres no sense having the aura malibu the upcoming EPII lacrosse the 9-3 and the g6 on the same platform its just too much to handle. can you imagine them having to deal with dodge chrysler and jeep too its just gonna spread resources way too thinly

[camaro_freak]

sorry for my ignorance on this topic but what exactly does GM have to gain by doing this? Shouldn't we dig out of our own hole before we get pulled deeper in with Chrysler?

This sounds like a HORRIBLE idea to me IMHO.

[56 Starchief]

GM should try the Berkshire-Hathaway model with Chrysler.

[red_xtreme95]

This will be a good thing....The Slivreado can get a Cummins and i think GM is on the right track

[guitarlix]

If this actually happens and they don't nail the execution, it'll be mass suicide. I seriously hope this move isn't being made with an eye on retaining the #1 position. Pride comes before a fall.

[genjy]

So... maybe Hummers would be sold at Jeep dealerships? Awesome!


Buicks and Chryslers could be sold together. That would make sense because then two half-assed, awkwardly-near-luxury-but-not-really brands would be united to fight off Lincoln!

[1931Chevy]

Can GM survive a Merger, it has taken 10 years for Daimler to take note that Merger was a Mistake, or will Ford be the last American company if GM dont succeed

[tamatt27]

Originally Posted by 56 Starchief

GM should try the Berkshire-Hathaway model with Chrysler.

Care to elaborate?

[jae1987]

Even though the article said dismantiling the Chrysler group would be messy, I would prefer that instead of GM buying the whole company. Gm could pick up Jeep, and Chrysler for little money, drop all the models except for the Minivan, Wrangler and Grand Cheroke.

[Member17739]

Originally Posted by 1931Chevy

Can GM survive a Merger, it has taken 10 years for Daimler to take note that Merger was a Mistake, or will Ford be the last American company if GM dont succeed

DCX was always limited at sharing platforms, engines etc.. On the other hand, name one platform type, engine, transmission which Chrysler might need that it's not already in GM's parts bin.