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SOURCE: Detroit News

GM hasn't learned bigger isn't better
Daniel Howes: Commentary
Tuesday, October 21, 2008

Cerberus Capital Management LP's founder, Stephen Feinberg, is so desperate to get rid of Chrysler LLC that he's pushing the No. 3 automaker on General Motors Corp. and apparently calling it an industrial solution for the beleaguered American auto industry.

Talk about knowing your customer. Few things are more beguiling to GM executives than the deeply held belief that the bigger their company can be, the better -- no matter how scant the evidence, how fierce the competition or how tenuous GM's solvency amid a cash conflagration showing no sign of abating. Theoretically, GM's roll-up of Chrysler would give the victor access to its multibillion-dollar cash hoard, which doesn't account for the massive calls on cash required to shut down most of Chrysler.

Forget the back-channel spin from those with self-interested agendas rationalizing the boss's current negotiating position. Would this mega-deal, another stunning blow to Michigan's wobbly economy, make sense to Joe the Autoworker and others not drinking the Kool-Aid of the moment?

First, GM has been trying to leverage its scale for the past 15 years of the turnaround-that-never-comes. It has delivered better cars and trucks, but at the cost of steadily sliding market share, few profits in North America, dismal credit ratings, fewer plants, even fewer jobs, struggling dealers and too many brands to support. How would absorbing Chrysler, inheriting its obligations to employees, dealers and customers, make GM stronger at home? More importantly, when?

The industry's strongest players -- Toyota and Honda in Japan, BMW and Daimler in Germany -- have fewer brands. They shun (or unwind) acquisitions because they drain resources, create distractions and pollute corporate cultures. Instead, they focus on making what they have better, not getting bigger. That none of those companies is joining Feinberg's feeding frenzy says as much about them as it does about GM.

Second, GM's leadership historically has been deliberate, generous and humane, a corporate paternalism evinced in former CEO Robert Stempel's inability to pull the trigger on massive plant closings in the early '90s. His successor, Jack Smith, showed similar reluctance. Ditto Rick Wagoner, the current boss. Could GM's brass muster the guts to dismember Chrysler with the speed necessary to extract proposed savings before the extra cash runs out?

If so, it would be out of character for Wagoner & Co. and a startling commentary on the seriousness of GM's predicament. The General spent billions of shareholder dollars over several years to close plants, sell assets, cut benefits and eliminate tens of thousands of jobs -- nothing like the Chrysler blood-letting that would be needed in much less time.

Third, government bailouts are voguish again, with a would-be GM-Chrysler commingling evoking comparisons to Britain's nationalization of its failing auto industry in the 1970s. How enthusiastically would a new White House and a presumably more Democratic Congress embrace GM's push for a bailout, which appears increasingly obvious, if that would mean publicly financing the combined company's fratricide and ensuing fallout?

Conversely, how would taxpayers -- especially those outside the industry's strongholds -- like seeing their dollars used to buy out union workers, cut severance checks to salaried employees, wind down assembly plants and shrink dealer networks? Not exactly the same thing as doing your part to rescue the global financial system, which doesn't mean GM isn't planning to make the pitch anyway.

Fourth, given GM's record at delivering shareholder value -- namely, not much of one in North America -- why should anyone believe they could do it this time? Lots of good, honest people work at Chrysler, but the sad truth is that Detroit's smallest automaker has been living on borrowed time for more than a decade.

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GM doesn't need Chrysler, but may want to avoid some other company getting it. With their on again, off again decision-making, they don't need more decisions with Chrysler. What is going on behind closed doors, we may never know.
 

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We've been hearing this 'solution' to industrial woes ever since the Reagan era: the 'problem' is going to be solved by cut cut cut cut cut cut. Cut jobs, cut salaries, cut products cut market share.

It's been a 'success' too. Look at how the auto industry has cut itself nearly to death -now the wizards of Wall Street can only suggest more of the same - just at a faster rate. Cut cut cut cut cut.
 

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Discussion Starter · #4 · (Edited)
GM doesn't need Chrysler, but may want to avoid some other company getting it. With their on again, off again decision-making, they don't need more decisions with Chrysler. What is going on behind closed doors, we may never know.
I think that is the crux of it.

GM knows one thing: How to be a big company and command a big portion of the market. To an extent, you can't blame GM for wanting to "return to form" since at one time they did this so well. I'm not saying "Bigger IS Better" but GM seems to think so and it may be the only way they know how to do business.

Regardless, just as you say Dr. Show-Me, this may entirely be a defensive move by GM. They may be thinking 2 things: We can eliminate a domestic competitor and we can prevent a foreign company from getting a toe-hold/making further inroads in the North American market.

Either one would be a move you could see GM making purely from a business perspective. North America is accounting for less and less of GM's profits as time moves on. The General is making big inroads in Eastern Europe, China, and other markets. It has allowed them to shift their focus to operations overseas and one day their N.A. operation will account for significantly less than they currently do. This isn't much different from Tokyo, Inc. or the Europeans, who have made big inroads in the US and depend more on this market for sustainable profits than their own home markets.

But that scenario coming to fruition is still a number of years off. Until that is realized, nearly 40% of GM's profits/loss comes from North America. They still need to "shield themselves" here at home even as they continue to ramp up production elsewhere in the world.

The bottomline is that GM needs to survive til 2010 when their UAW agreement kicks in and they start to reap a larger savings. If GM wants to surive til then - and possibly better their position in the market in the short term - then this may be the right move from where they are sitting.

Nevertheless, it doesn't mean that I have to be happy about it. I'd rather have Chrysler sign an industrial/cooperative agreement with GM and/or FoMoCo, etc than have them formally dissolve the company in a takeover.
 

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We've been hearing this 'solution' to industrial woes ever since the Reagan era: the 'problem' is going to be solved by cut cut cut cut cut cut. Cut jobs, cut salaries, cut products cut market share.

It's been a 'success' too. Look at how the auto industry has cut itself nearly to death -now the wizards of Wall Street can only suggest more of the same - just at a faster rate. Cut cut cut cut cut.
Right.

Because the rest of the world's economies had rebuilt by the 1970's after being destroyed in WWII, and were bringing the global economy back into equilibrium.

US workers were paid too much, our industries had too much capacity, and we made too many products to sell in a global economy.

So yes, US companies have to cut until they are right-sized.
 

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For a while there I actually thought that Vultures-Are-Us were a serious outfit and they'd stick with Chrysler and try to improve it. But I guess all the rumors were true, these guys know only how to tear something apart and run away with their pockets filled.
I've never heard that GM execs are "humane"- what do these journalists want? A million workers let go at a time?
From Chrysler's perspective the best thing would be a merger with GM I imagine. Whatever changes would be slow in coming and I suspect they would keep a couple of Chyrsler's cars around. The Jackal's Renault wants, what, a couple of plants to build their lame cars and to rebadge Rams?
I just want to see Chrysler survive relatively intact with no major cuts in their car-lineup
 

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...First, GM has been trying to leverage its scale for the past 15 years of the turnaround-that-never-comes....
This is the problem; I don't think GM has *EVER* tried to leverage their scale. They just recently started to share models between Europe and the US, likewise Australia and anywhere else. For a global company, they have done anything but act like it for quite some time.
 

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The only way a Chrysler purchase would work is if GM gets pieces it needs -- like a van -- without the rest that it doesn't.

Of course, GM may well be thinking that it's best to buy it out as opposed to having it fall into Chinese or some other nation's hands thus providing a ready made beachhead.

Although I believe GM could leverage their existing platforms to keep a shell of Chrysler alive, what I'm not sure is whether it's profitable. Plus, for GM to move Chrysler to GM platforms would be a multi-year undertaking and during those years would Chrysler earn sufficient funds to cover the costs?
 

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This is the problem; I don't think GM has *EVER* tried to leverage their scale. They just recently started to share models between Europe and the US, likewise Australia and anywhere else. For a global company, they have done anything but act like it for quite some time.
You're quite right. GM has historically operated as a series of individual automakers in different markets. Toyota, on the other hand, is Toyota everywhere. GM hasn't leveraged their small car abilities in Europe to create great small cars in North America, much to their detriment.

They're starting to comprehend this fact and this I say is Lutz's influence. He simply comprehends that you don't reinvent things just because there's another country to sell your car in. You create a couple of variants, say sporty and luxuriously sprung models and sell those everywhere as opposed to one variation for North America, another for Europe, a third for Asia, and so on. It's an utter waste of resources and assumes, incorrectly, that no one in Europe wants a car similar to what Americans desire and vice versa. Idiocy.

Thus, I do think GM sees some synergies, especially in trucks. I also think GM sees use for Zeta and the tooling done in Oshawa as well as more opportunities for Epsilon, to say nothing of leveraging Delta II for another car line. It's why deep down I think GM's goal is to gut Chrysler and make them nothing more than a retail outlet for customized GM vehicles that look like Chryslers.
 

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Right.

Because the rest of the world's economies had rebuilt by the 1970's after being destroyed in WWII, and were bringing the global economy back into equilibrium.

US workers were paid too much, our industries had too much capacity, and we made too many products to sell in a global economy.

So yes, US companies have to cut until they are right-sized.
Yup and everything you said also applies to the U.S. financial services industry. ;)
 

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Still thinking this is a disaster of "big" in the making...

How "big" are the chances GM would complete such a deal, take a few pieces and the bag of cash apparently sitting there, and then kill everything else off. Basically making the Big 2. Or is this, really, the deal being talked about--honestly--that I'm missing?

Either way, this whole thing confuses me...all automakers (well, most all) not doing the best right now, and the domestics really doing craptacular, but the biggest of "too biggest" wants to get bigger by swallowing the dud of the 3 for some cash and to get rid of GMAC. Odd. Has to be a better way. Or maybe not.

Who else has just been confused since hearing this?
 

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You're quite right. GM has historically operated as a series of individual automakers in different markets. Toyota, on the other hand, is Toyota everywhere. GM hasn't leveraged their small car abilities in Europe to create great small cars in North America, much to their detriment.

They're starting to comprehend this fact and this I say is Lutz's influence. He simply comprehends that you don't reinvent things just because there's another country to sell your car in. You create a couple of variants, say sporty and luxuriously sprung models and sell those everywhere as opposed to one variation for North America, another for Europe, a third for Asia, and so on. It's an utter waste of resources and assumes, incorrectly, that no one in Europe wants a car similar to what Americans desire and vice versa. Idiocy.

Thus, I do think GM sees some synergies, especially in trucks. I also think GM sees use for Zeta and the tooling done in Oshawa as well as more opportunities for Epsilon, to say nothing of leveraging Delta II for another car line. It's why deep down I think GM's goal is to gut Chrysler and make them nothing more than a retail outlet for customized GM vehicles that look like Chryslers.
That's what I see happening as well. I think it CAN work out in GM's favor, but at the expense of Chrylser's heritage and their workers.
 

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Nissan-renault is most likey going too buy up chrysler, then gm will.
I'd be fine with Nissan taking them, 100% of them.

That actually makes a LOT more sense, in every way, to me. Still keep them "Chrysler-Dodge-Jeep" but under the parent company of Nissan-Renault. Sharing could expand, and be managed by the more controlled and better Nissan in this regard (Armada/QX56 non-withstanding), and they would still be who they are...but like how they were under Daimler. Just not strangled to put out more Sebrings and friends, under the nose of stuffy Germans.
 

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Take the Vans, Jeep and 300/Charger/Challenger and dump the rest as a bunch of junk destined to the scarp heap.

Otherwise, there really isn't much value in the rest of the company.

But that's just my humble opinion. Otherewise, not much of value to GM except for some modernized plants.
 

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Thus, I do think GM sees some synergies, especially in trucks. I also think GM sees use for Zeta and the tooling done in Oshawa as well as more opportunities for Epsilon, to say nothing of leveraging Delta II for another car line. It's why deep down I think GM's goal is to gut Chrysler and make them nothing more than a retail outlet for customized GM vehicles that look like Chryslers.

That's what I see happening as well. I think it CAN work out in GM's favor, but at the expense of Chrylser's heritage and their workers.
That I would be okay with too, mostly. It would be rough, but possible. Just sad for Chrysler fans.

I just, like many, doubt GM--even in the greatness they do have--being able to successfully manage such a thing, without disaster at door 1, 2, 3, and 4 before a little light at 5.
 
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