GM: Unrealistic Expectations

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Chrysler's bankruptcy plan says it would need $24 billion in debtor-in-possession financing from the government. Without it, the company would face a 24-month-long liquidation. Chrysler estimates the cost of the loan program to be $65 per tax filer, with the expectation that the loans can be repaid. Liquidation, with the resulting unemployment, lost tax revenues, and the government assuming pension liabilities would be $1,200 per tax filer, the automaker estimates.

Chrysler's plan calls for the company to stay independent but in an alliance with Italian automaker Fiat (FIA.MI), which would share vehicle platforms, engines, and technology with Chrysler in exchange for 35% of the company and the possibility that it could acquire an additional 20% at a later date.

But Chrysler also outlined enormous savings that could be gained from a consolidation of Chrysler with another automaker. It does not name General Motors as the other company, but the two companies talked at length last year about merging. One source at GM said the company does not have much interest in merging with Chrysler and that talks didn't get very far last year before GM realized that the costs outweighed the benefits.

GM Winnows Brands

Chrysler has too many problems, and GM has a lot of work to do. One of its big issues is winding down four of its eight brands. GM will spin Saab into a separate independent company. Saturn will effectively be closed after 2011, and Hummer will be shuttered if a buyer isn't found soon. GM has set aside money to pay dealers for their investment in the euthanized brands. Pontiac will just be a niche player selling a couple of sports cars in Buick-GMC showrooms.

That will allow GM to drop down to 36 nameplates from 48. With fewer mouths to feed, GM says it could be competitive spending just $6.5 billion a year on new vehicles. The company spent as much as $8 billion in recent years.

But going forward, Chevrolet, Cadillac, Buick, and GMC will get all of the funding. "GM has to continue on its very recent path of building cars people like," says Roger Martin, dean of the University of Toronto's Rotman School of Management. "The entire product portfolio has to look that way."

Welch is BusinessWeek's Detroit bureau chief. Kiley is a senior correspondent in BusinessWeek's Detroit bureau.