the air

GM has expressed strong internal interest in the possible pursuit of Chrysler. DaimlerChrysler has made it clear that they are willing to shed themselves of Chrysler, if the price is right. However, plenty of hurdles lie ahead for GM and Chrysler should a deal materialize. Both companies are struggling to make a profit and GM is in the midst of a major turnaround plan. In addition, Chrysler has produced some of the most exotic sedans at affordable prices, but have failed to turn a profit. If GM were to acquire Chrysler, there would be an immediate fat-trimming session as GM would want to integrate their products with Chrysler’s as much as possible.

GM executives have also war-gamed specific strategies for cutting costs and streamlining operations if they do acquire Chrysler. They have picked through various product lines to determine whether two or more can be built on the same platform to trim costs and simplify purchasing. Possibilities include building the next-generation Dodge Ram pickup with the same platform as the Chevrolet Silverado and using the Jeep Wrangler platform for the Hummer H4 concept car from GM. GM executives also see an opportunity to improve Chrysler’s profitability by buying parts from around the globe.

Since GM is struggling to satisfy their own shareholders, it is possible that they would prefer to acquire Chrysler for as little money as possible. In essence, they would want Chrysler at a lucratively low price so that they can offset union expenses and dealer consolidation costs. In addition, the unions would have to concede numerous benefits before GM could even think about going after Chrysler. GM’s health-care costs are around $50 billion and Chrysler’s is near $22 billion. Add those two together and GM definitely has a major problem on their hands.

Then there is the possibility that the two companies would close plants and marry their manufacturing operations. Sean McAlinden, chief economist at CAR, says that alone could mean the reduction of 10,000 to 15,000 union jobs. The UAW would have to come to the table willing to make significant concessions.

I still stand by my words that GM is not going to acquire Chrysler because DaimlerChrysler is not going to release Chrysler without some significant return. In addition, both Renault-Nissan and Hyundai are possible suitors since they are yearning for a stronger presence in the US. It is possible that Chrysler could enter into a mult-lateral agreement with another manufacturer to ease production costs and engage in revenue sharing. In addition, there is also the likelihood that a GM-Chrysler merger could cause some trouble with anti-trust laws. It will be interesting to see how events unfold and where Chrysler ends up.

Source: BusinessWeek

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