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The GM-Chrysler Deal - A Disaster of Historic Proportions? Or an opportunity that just cannot be passed up?
Detroit. I actually wasn't going to write about the potential of GM buying Chrysler this week, especially since the dissecting, hand-wringing and hyperventilation by every media faction and the burgeoning hordes of instant auto industry "experts" on the web have reached epic proportions. Besides, if you want to read the definitive piece on the subject you should just check out David Welch's take on things this week for BusinessWeek. But, since this involves Chrysler, a car company I've gladly covered (and hammered) over the years, and General Motors, the car company I know probably better than anyone else covering the business out there, sometimes you just have to do what you have to do.
Yes, I could instantly see GM's perspective on all of this, and if you were to tap into their latest thinking out loud it would go something like this: "We'll cherry pick the stuff that matters. We'll take the minivans and offer them through select parts of our existing divisional lineup. We'll take the Jeep franchise because to be able to get it this cheap is a no-brainer, and we can fold it into our existing Hummer lineup. We'll delete the bad nameplate extensions they've been screwing around with, and we'll focus on the Wrangler, which will accelerate the development of the smaller 'H4' we've been playing with for four years now. As a matter of fact, we'll call the whole thing HummerJeep, and we're good. We'll take their best plants and use them to our advantage. We can accelerate our hot new rear-wheel-drive cars like the Pontiac G8, the new Chevrolet Impala, the Camaro and the Pontiac GTO to market by building them where the 300C/Magnum/Charger are being built, along with our own facilities. We'll extend our architecture-sharing technology program to include the Dodge truck lineup, but we'll eliminate the weak links and streamline that too. And we'll eliminate any other products that don't measure up, but we'll extend our exciting - and more contemporary - vehicle architectures to the ones worth keeping. When we get it all squared away, we'll have a stronger GM, plus the newly strengthened, newly focused company will not be knocked-off of its "No. 1 automaker in the world" perch for a long, long time - if ever."
Sounds simple, right? Nah, not even close.
When you have a car company that already consists of too many divisions + too many nameplates + too many dealers + too much plant capacity + too many employees, and you add another car company with all of those problems and more, you could be brewing up a recipe for total disaster.
If GM absorbs Chrysler, the long-term positives are indeed measurable and attractive, but the short-term headaches would be absolutely staggering. Thousands of Chrysler employees would lose their jobs as redundancies are eliminated. and on top of that, the legacy costs that GM would have to immediately bear would be crushing. Not to mention the fact that the UAW would be staring down the barrel of an even more drastically negative negotiating platform for the upcoming contract talks this summer - and if they don't come around to the notion that there will be fewer jobs at lower pay points and they decide to throw a wrench into the works by balking at the whole mess - then the domestic auto industry could be paralyzed and sent into a final pirouette right into the ground.
But the gnarliest component in all of this is the Chrysler Group dealers. The franchise laws in this country are so tight and unforgiving to the manufacturers that GM would have to undertake the most expensive dealer franchise buyout in automotive history, because there are simply too many of them for the combined organizational structure. And seeing as GM just did this not too long ago with Oldsmobile dealers, they are well aware of how costly and acrimonious this whole undertaking would be.
It would take a huge amount on GM's part to accomplish this transition. And it would divert the attention of many top executives just when GM is actually showing signs of product and marketing life after years of being lost in the desert of mediocrity.
Is it really worth it?
Well, at the end of the day it just might be, because despite all of the negatives and all of the horrendous short-term horror stories associated with this move and the absolutely decimating effect it would have on this region in terms of the loss of white and blue collar jobs - a region that really can't withstand one more shred of bad news - the bottom line is that GM would be acting in their long-term best interests by buying Chrysler.
Why?
Forget about the whole ego thing of retaining their "No. 1 automaker in the world" title too. That's not the overriding factor in this decision, and it's frankly irrelevant. The real reason behind GM's interest is that they're adopting a defensive posture as much as anything else by going after Chrysler's shining assets - the Jeep brand, the minivan franchise, the Chrysler Group's "A" assembly facilities - and that means they are willing to do just about anything to prevent those assets from falling into the competition's hands (the Chinese, VW, etc.), who are all expected to be interested in bidding on the Chrysler Group. And GM believes in this idea so strongly that it's willing to take on the huge challenge of assimilating the best bits of Chrysler into the GM system, even though the odds are stacked against them.
This business going forward will be about having a competitive global operating structure and having the right products. That means that further consolidations are not only inevitable, they're essential. The big auto conglomerates have been growing over the last few years by swallowing up the smaller companies, but now even the bigger, more attractive players are starting to emerge as targets - beginning with the Chrysler Group.
And it may just be the one opportunity that GM just cannot pass up.
Thanks for listening, see you next Wednesday.
After a 22-year career in automotive advertising, Peter M. DeLorenzo founded Autoextremist.com - an Internet magazine devoted to news, commentary and analysis of the auto industry - on June 1, 1999. Since then, the site has become a weekly "must read" for leading professionals within and outside the auto industry, and DeLorenzo is considered to be one of the most influential voices commenting on the business today.
et le 2ème article du Financial Times mentionnant une possibilité que Dailmer prends une participation minoritaire dans GM
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DaimlerChrysler is considering taking a minority stake in General Motors as payment for Chrysler if a deal between the two carmakers goes ahead.
According to people familiar with the situation, the Stuttgart-based German-American carmaker is weighing this all-share option. Other possibilities include a cash sale of Chrysler to private equity or industry investors, and a flotation of the money-losing unit.
"They are interested in who takes Chrysler over and they would be happy to take equity in GM in return," a leading shareholder said yesterday, citing discussions with DaimlerChrysler's senior managers.
Buying part or all of Chrysler's industrial assets for shares placed with DaimlerChrysler would relieve financially strapped GM of the need to raise new cash, which it would find onerous given the current "junk" status of its debt.
As a minority shareholder of GM, DaimlerChrysler could benefit from billions of dollars' worth of synergies and cost savings expected from merging the two Detroit-area carmakers.
At least two of DaimlerChrysler's institutional shareholders – which as a group are angry about the financial losses at Chrysler – have told management they like the idea of an all-equity deal.
Another person familiar with the process said it would be "premature" to say DaimlerChrysler formally approved the scenario – which would have to go to a shareholders' meeting – but confirmed that an all-share deal would be "logical" for GM.
Neither DaimlerChrysler nor GM has confirmed that a sale is being discussed. A DaimlerChrysler spokesman declined to comment on Sunday and referred to the company's February 14 statement that "all options" were open for Chrysler, which lost €1.1bn ($1.4bn) last year
Addressing GM employees on the company's FastLane blog on Friday, Steve Harris, vice-president for communications, wrote that "the company doesn't confirm or comment publicly on these types of discussions unless and until it's determined that disclosure is appropriate".
But people in or close to the companies have confirmed that a due diligence process is under way, led at GM by Fritz Henderson, chief financial officer. JPMorgan Chase is advising DaimlerChrysler on its options for its US unit.
Private equity groups have expressed interest in Chrysler or some of its assets, which may also interest carmakers from developing countries.
A sale of a large US industrial asset such as Chrysler to GM is politically more palatable for DaimlerChrysler, which has a large US business.