Posted by: David Kiley on February 16, 2007
Rumors are flying today that General Motors is in talks to acquire the Chrysler Group. Already my head hurts trying to figure out how the numbers would shake out in a way that would be good for GM and DaimlerChrysler, and that wouldn’t make the United Auto Workers even madder than they alreay are about lost jobs.
This is a fluid story, but here are some of the baffling questions to be answered.
If you accept that Chrysler could only be run profitably at about a 10% market share, as many have argued, then that means reducing more factories and headcount, and more employee buyouts.
But that still leaves you with a company with three brands—Chrysler, Dodge and Jeep, and one that has far too many dealers. If you are GM, already with eight brands it can hardly keep track of, why do you want to add three more? GM with 11 brands? The craziness of that defies the imagination. Toyota, with its three brands, will only laugh louder at their silly American friends in Detroit.
The cost of buying out tens of thouands employees on top of the ones they have already bought out? Do GM and Chrysler have the resources to do that without tanking both companies.
Why do it if you are GM? To thwart Toyota from being number-one automaker in the world? That seems like a crazy goal. The smartest thing I heard a GM exec say all year was the following: “We don’t have to beat Toyota. But we can sure as hell win along with them.” That’s sane thinking. Ask yourself GM…why is Toyota, the smartest, best run auto company in the world, not trying to buy Chrysler?
GM is hardly on solid footing, especially in North America. They haven’t fixed enough of the company yet. The new products that are arriving now are, for the most part, terrific. They are better than Toyota’s in many cases. What GM needs to do is invest time, patience and money into making their brands more attractive and magnetic. How adding Dodge and Chrysler to this mix—I can understand the attraction to Jeep—deals with that massive challenge, is beyond my comprehension.
It seems like the deal would result in a huge, useless distraction.
Or is it all to keep Chrysler out of the hands of the Chinese and Renault-Nissan?
A defensive move? That seems more besides-the-point than any argument I have heard so far. Stop worrying about Toyota and Carlos Ghosn. The aim of GM should be to make a sustained profit at any market share, whether it’s at the current 23% in North America or at 19% or 18%.
Buy Chrysler Group? Why don’t you just shoot yourself in both feet before you run the race to sustained profitability.