GM Buying Chrysler? It's Tough To See How That Deal Works.

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.

Reader Comments

Brendan Moore

February 16, 2007 4:34 PM

It seems crazy, doesn't it? But I think it's happening, I really do. It could work if GM did a couple of different things after they got Chrysler, but if they just maintain the status quo, or anything close to the status quo, then it's the worst decision they ever made.

But, it could really work if they judiciously took out manufacturing capacity that would then get replaced with their own (new) capacity and products.

Boy, is that scenario ugly from a labor perspective, though, as you point out.

Regardless, at 4:35 PM Eastern Tiime (16:35 hours) I think the deal is almost done. That's what I'm hearing from different places. Who would have thought this could happen, even 72 hours ago?

And if this information turns out to be wrong, I accept your jeers. . .

Brendan Moore - autosavant.net

Auto Dude

February 16, 2007 7:06 PM

This will be one of the worst business decision in corporate history. The decision sound more of xenophobia logic then sound business decision.
First, We don't want Toyota to be Number One. Let Buy Chrysler!
Second, I the Chinese Again! Blame the Chinese for everything at GM.
Third, Renalt-Nissan. Fear EuroTrash and Japanese. It Renalt-Nissan Fault for GM Demise.

GM need to fix itself not create a illusion to hide their incompetency and poor decision making.

Hint: Toyota should buy Chrysler Group, not GM.
Toyota can do more for Chysler than GM.

kurt

February 16, 2007 7:36 PM

Dew yew have a spell cheker?

chagrin2

February 16, 2007 7:41 PM


Your right Kiley, this tie up would make no sense as GM is already on a precarious position with so many brands to market successfully. I mean seriously what would it do with Jeep when it has its Hummer brand to sell. Too much inventory poses greater risk for higher losses and not to mention acquiring more workers it will eventually have to send home.

steve Ebert

February 16, 2007 7:51 PM

What's going on.

BD

wayne osborn

February 16, 2007 10:32 PM

American auto makers have done it to themselves. High prices and shoddy cars. Dropping the good sellers for some fancy name is crazy also. I have owned fourteen buicks, but I would not have the new ones in my garage. I am looking at the Toyota line.
Wayne Osborn

Mary Alwen

February 16, 2007 10:50 PM

Interesting story that sure makes sense!!

Love,
Jack

Observator

February 16, 2007 11:07 PM

There were at least two typos in this story. How's your spell check working? Copy editing, what? (alreay, befoe)

Matthew

February 16, 2007 11:21 PM

Two words: spell check.

Ilia

February 16, 2007 11:44 PM

AMEN!

Stephen Manesiotis

February 17, 2007 1:00 AM

GM has never been a well run company. The only reason that they reached high status in sales in the past, they were really the only game in town with a number of different models to choose from. Right now, they do not make fine or even good automobiles. Their workmanship is still shoddy; and the majority of their dealer representatives are still behaving like the fast-talking huckster that you can find on any street corner selling knock off watches or fake jewelry. I have purchased many GM products in my life. However, those days are gone. I will never buy another American Automobile ever again.

Henry Ford

February 17, 2007 6:29 AM

Hey, if they merge, they can then both put each other out of business.

Mike

February 17, 2007 1:12 PM

"Toyota, the smartest, best run auto company in the world"


Either you really love the Toyota Echo you own, or you are being paid by Toyota. What a ridiculous claim to make when reporting on a competing corporation. What ever happened to unbiased reporting? Why can't you just report what is going on and let the people formulate their own opinions, instead of throwing your snide little comments in there because you obviously don't like GM vehicles. I don't personally like GM and don't like their vehicles but if I was doing a news report on them I wouldn't say things that could mislead people into thinking they are a "bad" company somehow.

Wally

February 17, 2007 6:13 PM

"The Wall Street Journal asserts that the vehicles Toyota is exporting from Japan for sale in the U.S. Japan are pumping up its bottom line. Yesterday Toyota reported a 7.3% rise in net income for fiscal Q3 2007. But exports have bolstered the auto maker's profits because the weak yen means fatter profits from dollar-paying customers. There have been concerns in Congress about the yen, and Toyota executives have expressed concern overToyota 07 02 2007 Chart political backlash as it usurps market share from GM, Ford and Chrysler. Toyota says it is working to increase the number of vehicles it makes in North America, but in 2006 imported cars and trucks sold by Toyota in the U.S. rose 37% to 1.2 million vehicles (out of total sales of 2.5m), while sales from North American production were for the most part unchanged. Analysts estimate the yen decline from January 2005 adds about $3,000 in profit to each vehicle exported from Japan. In November, the CEOs of GM, Ford and Chrysler discussed the issue with President Bush. And yesterday, Ford Chief Alan Mulally said called the yen" "an issue the government needs to continually assess," saying, "We would encourage the U.S. to continually review the trade policies and make sure that we don't have currency manipulation."

This give Toyota an unfair advantage!!!!!!!!!!!!

ss jackson

February 17, 2007 7:26 PM

Chrysler should become the worlds first virtual company..with their jeeps and mininvans..cancel all other models. No dealers. Customers order on line with smart salespeople on the other end, from chrysler, can finance on line with chrysler. Then car is shipped to gm dealer closest to customer. GM dealer preps at set cost to Chrysler; customer takes delivery. GM dealer handles warranty (being Gm dealers they understand warranty, believe me) Service is one of GM dealers profit centers, since they can't sell cars at a profit, they have learned to exploit their service departments. Sound crazy? Maybe, but much more sane than GM buying Chrysler.

As to making UAW mad. Those geniuses have ruined the car business in america already. Have UAW manage GM if they are so smart.

David

February 18, 2007 3:34 AM

In business, there are times to expand, and times to contract, and I do believe it is fairly well established, that for American auto makers, it is time to contract. That would mean NO ACQUISITIONS. You have to think that the binge buying spree American auto makers have been on is just a bit like a compulsive disorder, and the bogus jingles used to justify them like "too big to fail," and "expand or lose market share," are equally pathogenic.

Steve_Ex_GM

February 20, 2007 11:22 AM

Where is Kurt Krikorian when we need him.

phillip

February 20, 2007 2:35 PM

I do not own either product, but there are advantages from a productive perspective. GM would gain access to Dodge's diesel technology since selling its controlling stake to Toyota. The minivan market, which GM gave, would be theirs again with the Chrysler Town & Country and Dodge Caravan. Perhaps even more important GM would have access to Chrysler's design and engineering expertise. I personally do not like most of the products from either company, but it would allow GM to fend off Toyota's reign of terror on their sales. GM's executives realize they can't beat Toyota with brand identity so volume will be the weapon of choice. Toyota run for NO.1 has been highly publicized with good reason, but this is GM answer.

chagrin2

February 20, 2007 10:18 PM


Kiley your right. It wont work! I just read an article About "Why GM is serious about buying Chrysler" and they just dont get it. That will just lead to overcapacity and colossal failure for both entities. Chrysler is just not doing well because of weak demand for its products and GM with 11 brands also has enough on its hands trying to make a turnaround.The only thing GM shuld buy from DCX is Detroit Diesel ( Its former Heavy diesel engine co.) as there is strong demand worldwide for Heavy diesel plants for Marine, Power generation and transport. GM please dont buy Chrysler it will be a monumental failure.

Sean

March 6, 2007 1:46 AM

I think that all the amercian motor companies ?should combin and just build one good,solid.reliable car that people will love or go crazy over.

Larry

March 18, 2007 3:42 AM

Some of the rumors now are that Dodge ,Chrysler Jeep, would probably not become an extra car line. And that the whole company would be cannabalized and blended into GM. Not sure how that would look, maybe Saturn would become Chryser? Maybe drop one of their pick-up lines which are both built for comfort, And start building a work truck. And there is some speculation that what GM really wants is the Jeep line to blend with the Hummer. The Jeep logo is second only to the red cross in being recognizeable world wide.
Seeing that GM has been coping Dodge,Chrysler ideas for years, I can see why they would want to buy it. Personally I hope that a private investment group, or Magna buys it.

jon

March 29, 2007 11:26 PM

I am have driven dodge mostly had one gm and it will be last. If gm buys out chrysler i will go ford. Sorry mopar fans and it will suck if there were no dodges.

Chevy man

October 18, 2008 11:22 PM

I really dont see why GM should consider buying Chrysler or any other maufacturer like ford or toyota even if they had the chance. GM is leapyears ahead in technology than any other company in the world. Making desent power with E-85, Hybrid engines, Lithium batteries, etc... I could go on and on easily. GM has the power to do whatever they put there mind to.

Chevy man

October 18, 2008 11:27 PM

Bad choice. Fords next on the s**t list

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