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GM Buying Chrysler: Why It Could Make Some Sense

Phil LeBeau/ CNBC
Friday, October 17, 2008

After a week of stating in this blog and on the air that I don't see the logic behind a combination of GM and Chrysler, I took the last two days to ask people familiar with the talks and inside the auto industry if I'm missing the boat.

In other words, does GM swallowing Chrysler make sense?

The consensus: It makes sense on paper, but whether GM [GM 6.50 0.10 (+1.56%) ] could execute this merger is very much in doubt. Here's why it might work.

Link to Full Article

 

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It's estimated GM would likely wind up spending $5-6 Billion to eliminate much of Chrysler's back office operation and hourly work force. If that's true, GM still comes out with an extra $7-8 Billion and in the process has eliminated a competitor.
What if that 5-6 billion becomes 7-8 or 8-9 or 9-10? An extra 7-8 billion would help for 7-8 months (since they're apparently losing 1 billion per month)... but an extra 3-4 billion would only help out 3-4 months. And all this is assuming that things don't get worse for the automotive industry, which very well could happen.
 

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The title indicates the article has the answers for why it makes sense, but he sure doesn't provide any detail in how it might make sense. Just the money I guess. He raises more questions than he provide answers. I don't think he's convinced yet either, I'm not. This is a risky gamble on GM's part, they must be desperate for cash is all I can figure.
 

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This merger is a big mistake. It will kill chrysler (except for Jeep) and over burdan GM's management, which is strugling with their present problems. Two sick firms never make
one healthy one. There is no compelling reason for this merger.
 

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GM Buying Chrysler: Why It Could Make Some Sense

No it doesn't make no sense at all.
 

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GM would also have access to Chrysler's part of the 25 billion low interest Government loans. Then GM would probably have a giant garage sale, selling off different parts of Chrysler for even more profit. It makes more dollar sense than product sense.
 

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Listening to people with journalism degrees and no automotive experience or business experience spout off about the pros & cons of automotive business decisions: Why it doesn't make sense.
 

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GM's root problem isn't a lack of money. They would have money today if they knew how to read and lead the auto industry. They'll just burn through Chryslers money and prolong the inevitable. They need a real shake-up and change in how their business is run... othwerwise they'll just keep on burning up cash.

If you have deep credit card debt you don't get out of it by getting another credit card.
 

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It seems to me the real results from this would be:

1) Chrysler's Cash goes to GM
2) GM looses (more/all) ownership in its own financial arm.
3) Chrysler ceases to exist as a car company
4) GM uses Chrysler's assets to try and survive to 2010.
4) Thousands of white collar and blue collar workers at Chrysler loose their jobs which will cost the Government (i.e. taxpayers) money.
5) GM may get more access to Government loans (i.e. taxpayer) money.

Or to put another way:

It looks like Chrysler has the financial resources to survive this economic downturn. GM may not be able to survive. But GM can use Chrysler as a life line because Cerberus wants out of the business and is more intolerant of loosing money. Plus they'd rather run a financial company instead of an automobile company.

The irony? Diamler went out of their way to insure that Chrysler Corp., would have a real chance of survival. The buyers don't seem to care.
 

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Discussion Starter · #11 · (Edited)
It seems to me the real results from this would be:

1) Chrysler's Cash goes to GM
2) GM looses (more/all) ownership in its own financial arm.
3) Chrysler ceases to exist as a car company
4) GM uses Chrysler's assets to try and survive to 2010.
4) Thousands of white collar and blue collar workers at Chrysler loose their jobs which will cost the Government (i.e. taxpayers) money.
5) GM may get more access to Government loans (i.e. taxpayer) money.
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6) GM uses it's extra capacity to produce the Caravan at 1 of it's current plants.

7) GM gets a stable mate in the Hummer line, either to help it's sale or make a profit.

8) The Ram could differentiate GMC from Chevy's truck line. Or is sold to Nissan.
 

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If this is happening then we need to get use to it. Yes, we all are Monday Morning Quarterbacks but none of us truly know what Chrysler or GM has on their balance sheet.
Do we know if the Federal Government is backing this merger with guaranteed low interest loans? We need to remember the Feds have been in the room for alot of backdoor deals such as JPMorgan takeover of Washington Mutual and Bank of America's grab of Merrill Lynch.
Even though the government's role was kept silent it is known in the industry that the Feds pushed things along.

With that being said, I have a feeling that the Feds are involved in this supposed merger. I am sure there are things that we do not know about that is coming into play with this merger.
 

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6) GM uses it's extra capacity to produce the Caravan at 1 of it's current plants.

7) GM gets a stable mate in the Hummer line, either to help it's sale or make a profit.

8) The Ram could differentiate GMC from Chevy's truck line. Or is sold to Nissan.

Re #6) Why would GM bother to retool one of its plants to build a product Chrysler is already building. Wouldn't GM become the owner of the Chrysler plant that is producing the Caravan?

Re #7) I'm assuing you mean Jeep. Are you expecting Jeep dealerships to carry Hummer products or are you expecting Hummer dealerships to sell Jeep products? I get why Jeep is valuable but how does this change Hummer unless GM intends to sell both?

re #8) Is the expectation that Dodge will immediately cease to exist and the dealerships are all out of business so that Chrysler products can be sold as GM products?
 

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Discussion Starter · #16 ·
Re #6) Why would GM bother to retool one of its plants to build a product Chrysler is already building. Wouldn't GM become the owner of the Chrysler plant that is producing the Caravan?

Re #7) I'm assuing you mean Jeep. Are you expecting Jeep dealerships to carry Hummer products or are you expecting Hummer dealerships to sell Jeep products? I get why Jeep is valuable but how does this change Hummer unless GM intends to sell both?

re #8) Is the expectation that Dodge will immediately cease to exist and the dealerships are all out of business so that Chrysler products can be sold as GM products?
6) because many GM plants are running at half capacity, key a page from Mazda's flexible manufacturing.

7) Looking at it again, Hummer would get the Jeep name for a short period, until they are sold as a pair.

8) That is exactly my expectations here. Maybe the 10k over sticker for a new Challenger was a good buy.
 

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I doubt GM could just shut Chrysler down. I'm pretty sure Chrysler Dodge Jeep account for more dealerships/jobs than Oldsmobile. My guess is they leave CDJ alone, use their money to weather this downturn, and when the economy picks back up sell CDJ to the highest bidder, hopefully for more than they paid for it.
 

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I would keep the Dodge lineup and of course Jeep. But I would immediately start shuttering the Chrysler line by choking off the product to the dealers. Don't go the Oldsmobile route as it was far too expensive.
 

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If they purchase Chrysler it would seem kinda dumb to just shut everything down except Jeep. All Chrysler really needs is a small car and a competive mid-size car and those are suppose to be coming from Nissan. It seems to me that if they do buy Chrysler they should leave their three brands alone and cut some of their own. I have thought for years that GM should be Chevrolet, Chevrolet trucks, Saab and Cadillac and maybe Buick. Hummer, Pontiac, GMC and Saturn are dead weight. That leaves three destinct Chrysler brands and four GM brands.

I wonder what kinda deal Nissan has in writing concerning their co-opperation
with Chrysler. Could GM walk away from that clear and free?
 

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