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One of the biggest questions relating to the automotive industry this week has been, “Is GM going to buy Chrysler?” The answer to this question is bound to have significant impact throughout the entire industry and could easily become the most significant event of 2007. Although Chrysler has introduced numerous vehicles with exotic styling, it has struggled to turn a profit. DaimlerChrysler has hinted strongly that the Chrysler division is holding it back from success and they officially put Chrysler on the selling block. However, many analysts are suggesting that an outright purchase of Chrysler by GM is highly unlikely given that GM has its own financial woes to consider first.

Jim Hall, an automotive analyst at consulting company AutoPacific, points out that GM already bears a heavy burden of $5 billion to $7 billion a year in health care and pension costs for current and retired employees. That’s money the world’s biggest automaker can’t spend on product development or marketing, and taking on similar obligations at Chrysler would increase those costs by a minimum of 30 percent, he said.

Surprisingly, DaimlerChrysler has recently unveiled a turn-around plan for Chrysler that hopes to yield a profit by 2008. It calls on the trimming of approximately 13000 jobs, roughly 16% of its North American workforce. Both GM and Chrysler are struggling with pension and health-care costs. As such, both companies are looking into ways to trim the number of employees and shutter production facilities. A possible avenue that GM is looking into is shared development and production costs. By creating similar components, both companies can share development costs and reduce overall costs. Analysts are also suggesting that Ford and GM have, in the past, developed a transmission that has proven to be quite successful and a similar deal may be in the works between GM and Chrysler.

Reports in The Wall Street Journal and The New York Times Friday said Chrysler and GM have held discussions related to developing a large sport utility vehicle like the Chevrolet Suburban or Tahoe, which Chrysler doesn’t have in its current product lineup. The Journal also said the two are looking at sharing small cars developed by a unit of GM in South Korea.

I don’t think GM is going to purchase Chrysler until it is able to control its own spiraling costs. However, to better compete with Toyota, Honda, and other manufacturers, it seems that the best thing for Chrysler and GM to do is to create an alliance. This alliance could further lead to a much more deeper cooperation and possibly leaner companies that are better equipped to deal with the onslaught of foreign competition.

Source: MSNBC.

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